FEDERATED HIGH INCOME BOND FUND INC, 485BPOS, 1996-05-29

FEDERATED HIGH INCOME BOND FUND INC
485BPOS, 1996-05-29

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1933 Act File No. 2-60103
1940 Act File No. 811-2782

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. ..............

Post-Effective Amendment No. 41 .......... X
-

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 34 ......................... X
--

FEDERATED HIGH INCOME BOND FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on May 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

X filed the Notice required by that Rule on May 15, 1995; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copies to:

Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of LIBERTY HIGH INCOME BOND
FUND, INC., which is comprised of three classes of shares, (1) Class A
Shares, (2) Class B Shares, and (3) Class C Shares is comprised of the
following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............(1-3) Cover Page.

Item 2. Synopsis.................(1-3) General Information, Summary of Fund
Expenses.

Item 3. Condensed Financial
Information.............(1-3) Financial Highlights.

Item 4. General Description of
Registrant..............(1-3) Performance Information; Investment
Information; Investment Objective;
Investment Policies; Investment Risks;
Investment Limitations; Appendix.

Item 5. Management of the Fund...(1-3) Fund Information; Management of the
Fund; Distribution of Shares;
Administration of the Fund.

Item 6. Capital Stock and Other
Securities..............(1-3) Dividends; Capital Gains;
Shareholder Information; Voting Rights;
Tax Information; Federal Income Tax; State
and Local Taxes.

Item 7. Purchase of Securities Being
Offered.................(1-3) Net Asset Value; How to Purchase
Shares; Investing in the Fund; (1)
Investing in Class A Shares; (2) Investing
in Class B Shares; (3) Investing in Class
C Shares; (1-3) Special Purchase Features;
Certificates and Confirmations; Exchange
Privilege; Requirements for Exchange; Tax
Consequences; Making an Exchange.

Item 8. Redemption or Repurchase. (1-3) How to Redeem Shares; Through a
Financial Institution; Redeeming Shares By
Telephone; Redeeming Shares By Mail;
Special Redemption Features; Contingent
Deferred Sales Charge; Elimination of the
Contingent Deferred Sales Charge; Account
and Share Information.

Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............(1-3) Cover Page.

Item 11. Table of Contents........(1-3) Table of Contents.
Item 12. General Information and
History.................(1-3) General Information About the
Fund; About Federated Investors.

Item 13. Investment Objectives and
Policies................(1-3) Investment Objective and
Policies.

Item 14. Management of the Fund...(1-3) Federated High Income Bond Fund,
Inc. Management

Item 15. Control Persons and Principal
Holders of Securities...(1-3) Fund Ownership.

Item 16. Investment Advisory and Other
Services.................(1-3) Investment Advisory Services;
Other Services.

Item 17. Brokerage Allocation.....(1-3) Brokerage Transactions.

Item 18. Capital Stock and Other
Securities..............Not Applicable.

Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered.................(1-3) Purchasing Shares; (1-3) Determining
Net Asset Value; (1-3) Redeeming Shares.

Item 20. Tax Status...............(1-3) Tax Status.

Item 21. Underwriters.............(1-3) Distribution of Shares.

Item 22. Calculation of Performance
Data....................(1-3) Total Return; (1-3) Yield;(1-3)
Performance Comparisons.

Item 23. Financial Statements.....(1-3) Incorporated by reference into Part
B, to Registrant's Annual Report dated
March 31, 1996; File Nos. 2-60103 and 811-
2782.

FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

PROSPECTUS

The shares of Federated High Income Bond Fund, Inc., (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing in a professionally managed, diversified portfolio limited
primarily to fixed income securities which seek to achieve high current income.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

SPECIAL RISKS

THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN LOWER-RATED CORPORATE DEBT
OBLIGATIONS, WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS". THESE LOWER-RATED
BONDS MAY BE MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE ECONOMIC CONDITIONS
THAN INVESTMENT GRADE BONDS. THESE LOWER-RATED BONDS ARE REGARDED AS
PREDOMINANTLY SPECULATIVE WITH REGARD TO EACH ISSUER'S CONTINUING ABILITY TO
MAKE PRINCIPAL AND INTEREST PAYMENTS. IN ADDITION, THE SECONDARY TRADING MARKET
FOR LOWER-RATED BONDS MAY BE LESS LIQUID THAN THE MARKET FOR INVESTMENT GRADE
BONDS. THE FUND'S INVESTMENT ADVISER WILL ENDEAVOR TO LIMIT THESE RISKS THROUGH
DIVERSIFYING THE PORTFOLIO AND THROUGH CAREFUL CREDIT ANALYSIS OF INDIVIDUAL
ISSUERS. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THIS FUND. (SEE THE SECTIONS IN THIS PROSPECTUS ENTITLED
"INVESTMENT RISKS" AND "REDUCING RISKS OF LOWER-RATED SECURITIES").

The Fund has also filed a Statement of Additional Information dated May 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4770. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1996

- --------------------------------------------------------------------------------
TABLE OF CONTENTS

Summary of Fund Expenses--
Class A Shares...............................................................1

Summary of Fund Expenses--
Class B Shares...............................................................2

Summary of Fund Expenses--
Class C Shares...............................................................3

Financial Highlights--Class A Shares...........................................4

Financial Highlights--Class B Shares...........................................5

Financial Highlights--Class C Shares...........................................6

General Information............................................................7

Investment Information.........................................................7

Investment Objective.........................................................7

Investment Policies..........................................................7

Investment Risks.............................................................9

Investment Limitations......................................................11

Net Asset Value...............................................................12

Investing in the Fund.........................................................12

How To Purchase Shares........................................................13

Investing In Class A Shares.................................................13

Investing In Class B Shares.................................................16

Investing In Class C Shares.................................................16

Special Purchase Features...................................................17

Exchange Privilege............................................................18

Requirements for Exchange...................................................18

Tax Consequences............................................................18

Making an Exchange..........................................................19

How To Redeem Shares..........................................................19

Special Redemption Features.................................................20

Contingent Deferred Sales Charge............................................21

Elimination of Contingent Deferred

Sales Charge.............................................................22

Account and Share Information.................................................23

Fund Information..............................................................24

Management of the Fund......................................................24

Distribution of Shares......................................................25

Administration of the Fund..................................................26

Shareholder Information.......................................................27

Voting Rights...............................................................27

Tax Information...............................................................27

Federal Income Tax..........................................................27

State and Local Taxes.......................................................27

Performance Information.......................................................28

Appendix......................................................................28

Addresses.....................................................................31

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)

CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... 4.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.74%
12b-1 Fee........................................................................................................ None
Total Other Expenses............................................................................................. 0.48%
Shareholder Services Fee (after waiver) (3)....................................................... 0.20%
Total Operating Expenses (4)............................................................................ 1.22%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased and redeemed with a
sales load and not distributed by Federated Securities Corp., may be charged
a contingent deferred sales charge of 0.50 of 1% for redemptions made within
one year of purchase. See "Contingent Deferred Sales Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.75%.

(3) The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.28% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each
time period.................................................................. $62 $82 $109 $186
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $57 $82 $109 $186
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)

CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.74%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.53%
Shareholder Services Fee.......................................................................... 0.25%
Total Operating Expenses (3) (4)........................................................................ 2.02%
</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. See "Contingent Deferred Sales
Charge".

(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(4) The total operating expenses would have been 2.03% absent the voluntary
waiver of a portion of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class B Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.............. $77 $107 $132 $215
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $21 $ 63 $109 $215
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)

CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.74%
12b-1 Fee........................................................................................................ 0.75%
Total Other Expenses............................................................................................. 0.51%
Shareholder Services Fee (after waiver) (3)....................................................... 0.23%
Total Operating Expenses (4)............................................................................ 2.00%
</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge".

(3) The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 2.03% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each
time period.................................................................. $31 $63 $108 $233
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $20 $63 $108 $233
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated May 15, 1996, on the Fund's
financial statements for the year ended March 31, 1996, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.54 $ 10.99 $ 11.19 $ 10.80 $ 8.79 $ 8.96 $ 10.99 $ 11.20 $ 12.53
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 1.00 1.01 1.05 1.13 1.23 1.21 1.33 1.40 1.42
- -------------------------
Net realized and
unrealized gain (loss)
on investments 0.55 (0.43) (0.19) 0.41 1.99 (0.14) (1.98) (0.20) (1.31)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 1.55 0.58 0.86 1.54 3.22 1.07 (0.65) 1.20 0.11
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (1.00) (1.03) (1.06) (1.15) (1.21) (1.24) (1.38) (1.41) (1.44)
- -------------------------
Distributions in excess
of net investment
income (b) (0.01) -- -- -- -- -- -- -- --
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (1.01) (1.03) (1.06) (1.15) (1.21) (1.24) (1.38) (1.41) (1.44)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 11.08 $ 10.54 $ 0.99 $ 11.19 $ 10.80 $ 8.79 $ 8.96 $ 10.99 $ 11.20
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 15.24% 5.74% 7.82% 15.39% 38.83% 14.20% (6.82%) 11.34% 1.30%
- -------------------------
RATIOS TO AVERAGE
NET ASSETS
- -------------------------
Expenses 1.22% 1.21% 1.18% 1.08% 1.02% 1.03% 1.02% 1.00% 1.05%
- -------------------------
Net investment income 9.07% 9.64% 9.27% 10.44% 12.40% 14.62% 13.01% 12.55% 12.37%
- -------------------------
Expense waiver/
reimbursement (d) 0.06% 0.05% 0.05% 0.08% -- -- -- -- --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $530,203 $448,040 $439,149 $417,015 $351,087 $252,147 $282,149 $379,876 $360,409
- -------------------------
Portfolio turnover 53% 52% 76% 49% 37% 32% 40% 43% 52%
- -------------------------

<CAPTION>
AUGUST 31,
1987(A) 1986
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 12.53 $ 12.17
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.85 1.53
- -------------------------
Net realized and
unrealized gain (loss)
on investments -- 0.37
- ------------------------- ----------- ------
Total from investment
operations 0.85 1.90
- ------------------------- ----------- ------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.85) (1.54)
- -------------------------
Distributions in excess
of net investment
income (b) -- --
- ------------------------- ----------- ------
Total distributions (0.85) (1.54)
- ------------------------- ----------- ------
NET ASSET VALUE,
END OF PERIOD $ 12.53 $ 12.53
- ------------------------- ----------- ------
TOTAL RETURN (C) 7.09% 16.51%
- -------------------------
RATIOS TO AVERAGE
NET ASSETS
- -------------------------
Expenses 1.02%* 1.06%
- -------------------------
Net investment income 11.72%* 12.41%
- -------------------------
Expense waiver/
reimbursement (d) -- --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $390,160 $352,641
- -------------------------
Portfolio turnover 25% 27%
- -------------------------
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the seven month period ended March 31, 1987.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS B SHARES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Arthur Andersen LLP, the Fund's
independent public accountants. Their report, dated May 15, 1996, on the Fund's
financial statements for the year ended March 31, 1996, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.54 $ 10.57
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------
Net investment income 0.95 0.51
- ----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.51 (0.07)
- ---------------------------------------------------------------------------------------- ------- ----------
Total from investment operations 1.46 0.44
- ---------------------------------------------------------------------------------------- ------- ----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------
Distributions from net investment income (0.91) (0.47)
- ----------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) (0.01) --
- ---------------------------------------------------------------------------------------- ------- ----------
Total distributions (0.92) (0.47)
- ---------------------------------------------------------------------------------------- ------- ----------
NET ASSET VALUE, END OF PERIOD $ 11.08 $ 10.54
- ---------------------------------------------------------------------------------------- ------- ---------
TOTAL RETURN (C) 14.31% 4.47%
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------
Expenses 2.02% 2.02%*
- ----------------------------------------------------------------------------------------
Net investment income 8.29% 9.47%*
- ----------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.01% 0.05%*
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $238,055 $33,295
- ----------------------------------------------------------------------------------------
Portfolio turnover 53% 52%
- ----------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

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

(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

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

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, for the fiscal year ended March 31, 1996 which can be obtained
free of charge.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.54 $ 10.99 $ 11.18
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income 0.92 0.94 0.92
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.54 (0.44) (0.23)
- ------------------------------------------------------------------------------------ --------- --------- -----------
Total from investment operations 1.46 0.50 0.69
- ------------------------------------------------------------------------------------ --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Distributions from net investment income (0.91) (0.95) (0.88)
- ------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) (0.01) -- --
- ------------------------------------------------------------------------------------ --------- --------- -----------
Total distributions (0.92) (0.95) (0.88)
- ------------------------------------------------------------------------------------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.08 $ 10.54 $ 10.99
- ------------------------------------------------------------------------------------ --------- --------- -----------
TOTAL RETURN (C) 14.35% 4.91% 6.23%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 2.00% 1.98% 1.99%*
- ------------------------------------------------------------------------------------
Net investment income 8.30% 8.90% 8.54%*
- ------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.03% 0.05% 0.05%*
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $57,422 $32,376 $24,360
- ------------------------------------------------------------------------------------
Portfolio turnover 53% 52% 76%
- ------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from April 30, 1993 (date of initial
public offering) to March 31, 1994.

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

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, for the fiscal year ended March 31, 1996, which can be obtained
free of charge.

- ------------------------------------------------------------------------------

GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on October 14,
1977. At a meeting of the Board of Directors ("Directors") held on February 26,
1996, the Directors approved an amendment to the Articles of Incorporation of
the Fund to change the name of the Fund from Liberty High Income Bond Fund, Inc.
to Federated High Income Bond Fund, Inc. The Articles of Incorporation permit
the Fund to offer separate series of shares representing interests in separate
portfolios of securities. As of the date of this prospectus, the Directors have
established three classes of shares for the Fund, known as Class A Shares, Class
B Shares, and Class C Shares (individually and collectively as the context
requires, "Shares").

Shares of the Fund are designed primarily for customers of financial
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of fixed income securities. The
minimum initial investment for Class A Shares is $500. The minimum initial
investment for Class B Shares and Class C Shares is $1,500. However, the minimum
initial investment for a retirement account in any class is $50. Subsequent
investments in any class must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

- -------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek high current income by investing
primarily in a diversified portfolio of professionally managed fixed income
securities. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective and the policies and
limitations described below cannot be changed without approval of shareholders.

INVESTMENT POLICIES

The fixed income securities in which the Fund intends to invest are lower-rated
corporate debt obligations. Some of these fixed income securities may involve
equity features. Capital growth will be considered, but only when consistent
with the investment objective of high current income.

ACCEPTABLE INVESTMENTS

The Fund invests 65% of its assets in lower-rated fixed income bonds. Under
normal circumstances, the Fund will not invest more than 10% of the value of its
total assets in equity securities. The fixed income securities in which the Fund
invests include, but are not limited to:

preferred stocks;

bonds;

debentures;

notes;

equipment lease certificates; and

equipment trust certificates.

The Fund may purchase fixed income securities on a when-issued or delayed
delivery basis.
There is no limit to portfolio maturity. The prices of fixed income securities
fluctuate inversely to the direction of interest rates.

The securities in which the Fund may invest are generally rated BBB or lower by
Standard & Poor's Ratings Group ("Standard & Poor's") or Baa or lower by Moody's
Investors Service, Inc. ("Moody's"), or are not rated but are determined by the
Fund's investment adviser to be of comparable quality. Securities which are
rated BBB or lower by Standard & Poor's or Baa or lower by Moody's have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than higher rated bonds. A description of these rating
categories is contained in the Appendix to this prospectus. There is no lower
limit with respect to rating categories for securities in which the Fund may
invest. See "Investment Risks" below.

TEMPORARY INVESTMENTS

The Fund may invest temporarily in cash and short-term obligations during times
of unusual market conditions for defensive purposes. Short-term obligations may
include:

certificates of deposit;

commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch Investors Service and variable rate demand
master notes;

short-term notes;

obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and

repurchase agreements (arrangements in which the organization selling the Fund
a fixed income security agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).

As a matter of investment practice, which can be changed without shareholder
approval, the Fund will not invest more than 15% of its net assets in securities
which are illiquid.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral equal to at
least 100% of the value of the securities loaned in the form of cash or U.S.
government securities.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

PORTFOLIO TURNOVER

Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.

INVESTMENT RISKS

The corporate debt obligations in which the Fund invests are usually not in the
three highest rating categories of the recognized rating agencies (AAA, AA, or A
for Standard & Poor's and Aaa, Aa or A for Moody's) but are in the lower rating
categories or are unrated but are of comparable quality and have speculative
characteristics. Lower-rated or unrated bonds are commonly referred to as "junk
bonds". There is no minimal acceptable rating for a security to be purchased or
held in the Fund's portfolio, and the Fund may, from time to time, purchase or
hold securities rated in the lowest rating category. Companies who have received
the lowest rating have failed to satisfy their obligations under the bond
indenture. A description of the rating categories is contained in the Appendix
to this prospectus.

Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities which react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the prices or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers in lower-rated securities. In addition, since there are
fewer investors in lower-rated securities, it may be harder to sell the
securities at an optimum time.

As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.

An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligation to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of the securities they have issued. As a
result of these restructurings, holders of lower-rated securities may receive
less principal and interest than they had bargained for at the time such bonds
were purchased.

In the event of a restructuring, the Fund may bear additional legal or
administrative expenses in order to maximize recovery from an issuer.

The secondary trading market for lower-rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may also
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
portfolio.

The Fund may, from time to time, own zero coupon bonds or pay-in-kind
securities. A zero coupon bond makes no periodic interest payments and the
entire obligation becomes due only upon maturity. Pay-in-kind securities make
periodic payments in the form of additional securities (as opposed to cash). The
price of zero coupon bonds and pay-in-kind securities are generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Additionally, federal tax law requires that interest on zero coupon bonds and
paid-in-kind securities be reported as income to the Fund even though the Fund
received no cash interest until the maturity or payment date of such securities.
To maintain its qualification as a regulated investment company and avoid
liability of federal income taxes, the Fund will be required to distribute
income accrued from zero coupon convertible securities which it owns, and may
have to sell portfolio securities (perhaps at disadvantageous times) in order to
generate cash to satisfy these distribution requirements.

Many corporate debt obligations, including many lower-rated bonds, permit the
issuers to call the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if the Fund owns a bond which is
called, the Fund will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at lower interest rates, thus
reducing income to the Fund.

The table below shows the weighted average of the ratings of the bonds in the
Fund's portfolio during the Fund's fiscal year ended March 31, 1996. The credit
ratings categories are those provided by Moody's and Standard and Poor's, which
are both nationally recognized statistical rating organizations. A description
of these ratings can be found in the Appendix to this prospectus. The
percentages in the column titled "Rated" reflect the percentage of bonds in the
portfolio which received a rating from at least one of these organizations. The
percentages in the column titled "Not Rated" reflect the percentage of bonds in
the portfolio which are not rated but which the Fund's investment adviser has
judged to be comparable in quality to the corresponding rated bonds.

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL
CREDIT RATING CORPORATE BOND INVESTMENTS
CATEGORY* RATED NOT RATED TOTAL
<S> <C> <C> <C>
BB 17.26% 0.00% 17.26%
B 78.02% 0.75 78.77
CCC 2.84 0.47 3.31
CC 0.66 0.00 0.66
--------- ----- ---------
98.78% 1.22% 100.00%
--------- ----- ---------
--------- ----- ---------
</TABLE>

*May include all degrees of risk within the rating category.

REDUCING RISKS OF
LOWER-RATED SECURITIES

The Fund's investment adviser believes that the risks of investing in
lower-rated securities can be reduced. The professional portfolio management
techniques used by the Fund to attempt to reduce these risks include:

CREDIT RESEARCH

The Fund's investment adviser will perform its own credit analysis in addition
to using recognized rating agencies and other sources, including discussions
with the issuer's management, the judgment of other investment analysts, and its
own informed judgment. The adviser's credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow, interest, or dividend
coverage and earnings. In evaluating an issuer, the adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical cost.

DIVERSIFICATION

The Fund invests in securities of many different issuers, industries, and
economic sectors to reduce portfolio risk.

ECONOMIC ANALYSIS

The Fund's adviser will analyze current developments and trends in the economy
and in the financial markets. When investing in lower-rated securities, timing
and selection are critical, and analysis of the business cycle can be important.

INVESTMENT LIMITATIONS

The Fund will not:

invest more than 10% of its total assets in securities subject to restrictions
on resale under federal securities law (except for commercial paper issued
under Section 4(2) of the Securities Act of 1933);

borrow money or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up to
10% of the value of those assets to secure such borrowings;

invest more than 5% of its total assets in securities of one issuer (except
cash and cash items, repurchase agreements, and U.S. government obligations);

make loans, except that it may invest up to 5% of the value of its total assets
in repurchase agreements which mature in more than seven days from the time
they are entered into, and it may lend portfolio securities where the borrower
of the securities provides 100% collateral;

sell securities short except, under strict limitations, the Fund may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions;

invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or

invest more than 5% of its total assets in foreign securities which are not
publicly traded in the United States.

The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

The Fund will not:

invest more than 15% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within seven
days.

- -----------------------------------------------------------------------------
NET ASSET VALUE

The Fund's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined at the
close of trading (normally 4:00 p.m., (Eastern time), on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no Shares are
tendered for redemption and no orders to purchase Shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

- ------------------------------------------------------------------------------
INVESTING IN THE FUND

The Fund offers investors three classes of Shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and that bear
different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales charge of 4.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales charges. See "Reducing or
Eliminating the Sales Charge". Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales charge, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares will automatically convert into Class A
Shares, based on relative net asset value, on or around the fifteenth of the
month eight full years after the purchase date. Class B Shares provide an
investor the benefit of putting all of the investor's dollars to work from the
time the investment is made, but (until conversion) will have a higher expense
ratio and pay lower dividends than Class A Shares due to the 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales charge, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.

- ------------------------------------------------------------------------------
HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is open
for business. Shares of the Fund may be purchased as described below, either
through a financial institution (such as a bank or broker/dealer which has a
sales agreement with the distributor) or by wire or by check directly to the
Fund, with a minimum initial investment of $500 for Class A Shares and $1,500
for Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:

<TABLE>
<CAPTION>
DEALER
SALES CHARGE SALES CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than
$100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession."

No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other fee
by the financial intermediary. Additionally, no sales charge is imposed on
shareholders designated as Liberty Life Members or on Class A Shares purchased
through "wrap accounts" or similar programs under which clients pay a fee for
services.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING OR ELIMINATING
THE SALES CHARGE

The sales charge can be reduced or eliminated on the purchase of Class A Shares
through:

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales charge paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales charge. In addition, the sales charge, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after it
confirms the purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of Class A Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser or
principal underwriter (the "Federated Funds") the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in Class A Shares in one of the other Federated Funds with a sales
charge, and $70,000 in this Fund, the sales charge would be reduced.

To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $100,000 of Class A Shares of
Federated Funds (excluding money market funds) over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold up to 5.50% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon the
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales charge.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales
charge, with the proceeds from the redemption of shares of an unaffiliated
investment company that were purchased or sold with a sales charge or commission
and were not distributed by Federated Securities Corp. The purchase must be made
within 60 days of the redemption, and Federated Securities Corp. must be
notified by the investor in writing, or by his financial institution, at the
time the purchase is made. From time to time, the Fund may offer dealers a
payment of .50 of 1.00% for Shares purchased under this program. If Shares are
purchased in this manner, redemptions of those Shares will be subject to a
contingent deferred sales charge for one year from the date of purchase.
Shareholders will be notified prior to the implementation of any special
offering as described above.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales charge,
under certain circumstances described under "Contingent Deferred Sales
Charge--Class B Shares," a contingent deferred sales charge may be applied by
the distributor at the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a fee under the Fund's Distribution Plan
(see "Distribution of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales charge,
fee or other charge. Class B Shares acquired by exchange from Class B Shares of
another Federated Fund will convert into Class A Shares based on the time of the
initial purchase. For purposes of conversion to Class A Shares, Shares purchased
through the reinvestment of dividends and distributions paid on Class B Shares
will be considered to be held in a separate sub-account. Each time any Class B
Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and the conversion of
Class B Shares to Class A Shares will not occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston, MA;
Attention; EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number--this
number can be found on the account statement or by contacting the Fund); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

PURCHASING SHARES BY CHECK

Once an account has been established, Shares may be purchased by mailing a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received).

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.

- -------------------------------------------------------------------------------
EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated funds at net asset value. Neither the Fund nor any of the
Federated Funds impose any additional fees on exchanges. Shareholders in certain
other Federated Funds may exchange all or some of their Shares for Class A
Shares.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other Federated Funds. (Not all Federated Funds currently offer Class B
Shares. Contact your financial institution regarding the availability of Class B
Shares of the Federated Funds). Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged Shares. To
the extent that a shareholder exchanges Shares for Class B Shares of other
Federated Funds, the time for which the exchanged-from Shares are to be held
will be added to the time for which exchanged-from Shares were held for purposes
of satisfying the applicable holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
of other Federated Funds at net asset value without a contingent deferred sales
charge. (Not all Federated Funds currently offer Class C Shares. Contact your
financial institution regarding the availability of other Class C Shares of
Federated Funds.) To the extent that a shareholder exchanges Shares for Class C
Shares of other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the applicable holding period. For more information,
see "Contingent Deferred Sales Charge."

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-245-5051 for information on and prospectuses for the Federated Funds
into which your Shares may be exchanged free of charge.

Shareholders of Class A Shares who have been designated Liberty Life Members are
exempt from sales charges on future purchases in and exchanges between the Class
A Shares of any Federated Funds, as long as they maintain a $500 balance in one
of the Federated Funds.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanging may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Shareholder Services Company, 1099 Hingham Street, Rockland,
MA 02370-3317.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before being
exchanged. Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern
time) and must be received by the Fund before that time for Shares to be
exchanged the same day. Shareholders exchanging into a Fund will begin receiving
dividends the following business day. This privilege may be modified or
terminated at any time.

- -------------------------------------------------------------------------------
HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below.

REDEEMING SHARES THROUGH
A FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp.

Proceeds will be mailed in the form of a check, to the shareholder's address of
record or wire transferred to the shareholder's account at a domestic commercial
bank that is a member of the Federal Reserve System. The minimum amount for a
wire transfer is $1,000. Proceeds from redeemed Shares purchased by check or
through ACH will not be wired until that method of payment has cleared. Proceeds
from redemption requests received on holidays when wire transfers are restricted
will be wired the following business day. Questions about telephone redemptions
on days when wire transfers are restricted should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA
02266-8600. If Share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.

The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales charge, it is not advisable for shareholders to continue to purchase Class
A Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or sold
with a sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

CLASS A SHARES, CLASS B SHARES,
AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and for less than one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares on a first-in, first-out basis. A contingent deferred sales
charge is not assessed in connection with an exchange of Fund Shares for Shares
of other Federated Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged-for Shares
are redeemed is calculated as if the shareholder had held the Shares from the
date on which he became a shareholder of the exchanged-from Shares. Moreover,
the contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor, and their immediate
family members; employees of any financial institution that sells Shares of the
Fund pursuant to a sales agreement with the distributor; and spouses and
children under the age of 21 of the aforementioned persons. Finally, no
contingent deferred sales charge will be imposed on the redemption of Shares
originally purchased through a bank trust department, an investment adviser
registered under the Investment Advisers Act of 1940 or retirement plans where
the third party administrator has entered into certain arrangements with
Federated Securities Corp. or its affiliates, or any other financial
institution, to the extent that no payments were advanced for purchases made
through such entities. The Directors reserve the right to discontinue
elimination of the contingent deferred sales charge. Shareholders will be
notified of such elimination. Any Shares purchased prior to the termination of
such waiver would have the contingent deferred sales charge eliminated as
provided in the Fund's prospectus at the time of the purchase of the Shares. If
a shareholder making a redemption qualifies for an elimination of the contingent
deferred sales charge, the shareholder must notify Federated Securities Corp. or
the transfer agent in writing that he is entitled to such elimination.

- -------------------------------------------------------------------------------
ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested in writing to Federated Shareholder Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.

DIVIDENDS

Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date net asset
value without a sales charge, unless shareholders request cash payments on the
new account form or by contacting the transfer agent. All shareholders on the
record date are entitled to the dividend. If Shares are redeemed or exchanged
prior to the record date or purchased after the record date, those Shares are
not entitled to that month's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

- ------------------------------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND
BOARD OF DIRECTORS

The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .75 of 1% of the
Fund's average daily net assets. Under the investment advisory contract, the
Adviser will reimburse the Fund the amount, limited to the amount of the
advisory fee. The Adviser may voluntarily choose to waive a portion of its fee
or reimburse the Fund for certain operating expenses. The Adviser has also
undertaken to reimburse the Fund for operating expenses in excess of limitations
established by certain states.

The fee paid by the Fund, while higher than the advisory fee paid by other
mutual funds in general, is comparable to fees paid by many mutual funds with
similar objectives and policies.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Mark E. Durbiano has been the Fund's portfolio manager since August of 1989. Mr.
Durbiano joined Federated Investors in 1982 and has been a Senior Vice President
of the Fund's investment adviser since January 1996. From 1988 through 1995, Mr.
Durbiano was a Vice President of the Fund's investment adviser. Mr. Durbiano is
a Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.

Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

DISTRIBUTION PLAN
(CLASS B SHARES AND
CLASS C SHARES ONLY)
AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution and distribution-related
support services pursuant to the Distribution Plan.

The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Distribution Plan.
In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to 0.25 of 1% of the average daily net asset value
of Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts. Under
the Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or by certain qualified plans as
approved by Federated Securities Corp. (Such payments are subject to a reclaim
from the financial institution should the assets leave the program within 12
months after purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
in addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors, as
specified below:

<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>

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.
Federated Services Company may choose voluntarily to waive a portion of its fee.

- --------------------------------------------------------------------------------

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.

As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.

As of May 7, 1996, the following shareholder of record owned 25% or more of the
outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as
record owner holding Shares for its clients), Jacksonville, Florida, owned
approximately 1,763,248 Shares (30.40% of Class C Shares).

- --------------------------------------------------------------------------------
TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.

STATE AND LOCAL TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
- -------------------------------------------------------------------------------

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for each class
of Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of non-recurring charges, such
as the maximum sales charge or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares and Class C Shares. Expense differences between Class A Shares, Class B
Shares and Class C Shares may affect the performance of each class.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C Shares of the Fund may refer to ratings, rankings, and other information in
certain financial publications and/or compare the performance of Class A Shares,
Class B Shares, and Class C Shares to certain indices.

- --------------------------------------------------------------------------------
APPENDIX

STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS DEFINITIONS

AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.

B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB-rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC-debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS

AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

FITCH INVESTORS SERVICE, INC.
COMMERCIAL PAPER RATINGS

FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated High Income Bond Fund
Class A Shares, Class B Shares, Federated Investors Tower
Class C Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------

Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------

Independent Auditors
Arthur Anderson LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ---------------------------------------------------------------------------------------------------------------------

</TABLE>

FEDERATED HIGH INCOME
BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME
BOND FUND, INC.)

CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

May 31, 1996

[LOGO] FEDERATED INVESTORS
SINCE 1955

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 314195108
Cusip 314195207
Cusip 314195306

G00667-02 (5/96) [LOGO]
RECYCLED
PAPER

FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Class A Shares, Class B Shares, and Class C Shares of
Federated High Income Bond Fund, Inc. (the "Fund"), dated May 31, 1996.
This Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement, if you received it
electronically, free of charge by calling 1-800-245-5051. To receive a
copy of the prospectus, write or call the Fund.

Statement dated May 31, 1996
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GENERAL INFORMATION ABOUT THE FUND 3

INVESTMENT OBJECTIVE AND POLICIES 3

Types of Investments 3
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Lending of Portfolio Securities 6
Portfolio Turnover 7
Investment Limitations 8
FEDERATED HIGH INCOME BOND
FUND, INC. MANAGEMENT 13

Fund Ownership 22
Officers and Directors Compensation 22
Director Liability 24
INVESTMENT ADVISORY SERVICES 24

Adviser to the Fund 24
Advisory Fees 25
BROKERAGE TRANSACTIONS 26

OTHER SERVICES 27

Fund Administration 27
Custodian and Portfolio Accountant 27
Transfer Agent 28
Independent Public Accountants 28
PURCHASING SHARES 28

Distribution Plan and Shareholder
Services Agreement 28
Conversion to Federal Funds 29
Purchases by Sales Representatives,
Fund Directors, and Employees 30
DETERMINING NET ASSET VALUE 30

Determining Market Value of
Securities 30
REDEEMING SHARES 31

REDEMPTION IN KIND 31

TAX STATUS 32

The Fund's Tax Status 32
Shareholders' Tax Status 32
TOTAL RETURN 33

YIELD 34

PERFORMANCE COMPARISONS 35

Economic and Market Information 37
ABOUT FEDERATED INVESTORS 37

Mutual Fund Market 38
Institutional Clients 38
Trust Organizations 39
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 39
FINANCIAL STATEMENTS 39

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on October
14, 1977. On April 29, 1993, the shareholders of the Fund voted to permit
the Fund to offer separate series and classes of shares. On February 26,
1996, the Board of Directors approved an amendment to the Articles of
Incorporation of the Fund to change the name of the Fund from Liberty High
Income Bond Fund, Inc. to Federated High Income Bond Fund, Inc.
Shares of the Fund are offered in three classes known as Class A Shares,
Class B Shares, and Class C Shares (individually and collectively referred
to as "Shares" as the context may require). This Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to seek high current income by investing
primarily in a diversified portfolio of professionally managed fixed income
securities. Some of these fixed income securities may involve equity
features. Capital growth will be considered, but only when consistent with
the investment objective of high current income. The investment objective
cannot be changed without approval of shareholders. Unless otherwise
indicated, the Fund's investment policies listed below may not be changed by
the Board of Directors without shareholder approval.
TYPES OF INVESTMENTS
The Fund invests in lower-rated fixed income bonds which may include:
o preferred stocks;
o bonds;
o debentures;
o notes;
o equipment lease certificates; and
o equipment trust certificates.

CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or
variable rates of interest. They may involve equity features such as
conversion or exchange rights, warrants for the acquisition of common
stock of the same or a different issuer, participations based on
revenues, sales or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are
offered as a unit). Equipment lease or trust certificates are secured
obligations issued in serial form, usually sold by transportation
companies such as railroads or airlines, to finance equipment
purchases. The certificate holders own a share of the equipment, which
can be resold if the issuer of the certificate defaults.
EQUITY SECURITIES
Generally, less than 10% of the value of the Fund's total assets will
be invested in equity securities, including common stocks, warrants, or
rights. The Fund's investment adviser, Federated Advisers (the
"Adviser"), may choose to exceed this 10% limitation if unusual market
conditions suggest such investments represent a better opportunity to
reach the Fund's investment objective.
RESTRICTED SECURITIES
The Fund expects that any restricted securities would be acquired
either from institutional investors who originally acquired the
securities in private placements or directly from the issuers of the
securities in private placements. Restricted securities are generally
subject to legal or contractual delays on resale.
Restricted securities and securities that are not readily marketable
may sell at a discount from the price they would bring if freely
marketable. The Fund may invest up to 10% of its total assets in these
securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction
has been settled.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
CERTIFICATES OF DEPOSIT
The Fund may invest in certificates of deposit of domestic and foreign
banks and savings associations if they have capital, surplus, and
undivided profits of over $100,000,000, or if the principal amount of
the instrument is insured by the Federal Deposit Insurance Corporation.
These instruments may include Eurodollar Certificates of Deposit issued
by foreign branches of U.S. or foreign banks, Eurodollar Time Deposits
which are U.S. dollar-denominated deposits in foreign branches of U.S.
or foreign banks, Canadian Time Deposits which are U.S. dollar-
denominated deposits issued by branches of major Canadian banks located
in the United States, and Yankee Certificates of Deposit which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government

securities or certificates of deposit to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price.
The Fund or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less
than the repurchase price on any sale of such securities. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks or other recognized financial institutions such as
broker/dealers which are deemed by the Fund's Adviser to be
creditworthy, pursuant to guidelines established by the Board of
Directors (the "Directors").
LENDING OF PORTFOLIO SECURITIES
The Fund may pay reasonable administrative and custodial fees in connection
with a loan. The Fund does not have the right to vote securities on loan,
but would terminate the loan and regain the right to vote if that were
considered important with respect to the investment. The Fund will only
enter into loan arrangements with broker/dealers, banks or other
institutions which the Adviser has determined are creditworthy under
guidelines established by the Fund's Board of Directors.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper and Europaper are
subject to somewhat different risks than domestic obligations of

domestic issuers. Examples of these risks include international,
economic, and political developments, foreign governmental restrictions
that may adversely affect the payment of principal or interest, foreign
withholding or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing bank, and the
possible impact of interruptions in the flow of international currency
transactions. Different risks may also exist for ECDs, ETDs, and Yankee
CDs because the banks issuing these instruments, or their domestic or
foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These
factors will be carefully considered by the Fund's Adviser in selecting
investments for the Fund.
PORTFOLIO TURNOVER
The Fund does not intend to engage in substantial short-term trading;
however, it may from time to time sell portfolio securities without regard
to the time they have been held (i) to take advantage or short-term
differentials in yields or in market value, (ii) to take advantage of new
investment opportunities, (iii) because of changes in creditworthiness, or
(iv) in an attempt to preserve gains or limit losses. Similarly, efforts to
minimize any perceived risk in an individual portfolio security may result
in greater portfolio turnover than would otherwise be the case in a
portfolio of high rated securities. A high portfolio turnover will result in
increased transaction costs to the Fund. The Fund will not attempt to
achieve or be limited by a predetermined rate of portfolio turnover since
turnover is incidental to transactions undertaken with a view to achieving
the Fund's investment objective. For the fiscal years ended March 31, 1996
and 1995, the portfolio turnover rates were 53% and 52%, respectively.

INVESTMENT LIMITATIONS
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of
transactions.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and only
in amounts not in excess of 5% of the value of its total assets, taken
at the lower of cost or market.
In addition, to meet redemption requests without immediately selling
portfolio securities, the Fund may borrow up to one-third of the value
of its total assets (including the amount borrowed) less its
liabilities (not including borrowings, but including the current fair
market value of any securities carried in open short positions). If,
due to market fluctuations or other reasons, the value of the Fund's
assets falls below 300% of its borrowings, it will reduce its
borrowings within three business days. No more than 10% of the value of
the Fund's total assets at the time of providing such security may be
used to secure borrowings. This practice is not for investment leverage
but solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.
INVESTING IN FOREIGN SECURITIES
The Fund may invest indirectly in the securities of foreign issuers,
which may include Eurodollar Certificates of Deposits issued by foreign
branches of U.S. or foreign banks, Eurodollar Time Deposits which are
U.S. dollar-denominated deposits in foreign branches of U.S. or foreign
banks, Canadian Time Deposits which are U.S. dollar-denominated

deposits issued by branches of major Canadian banks located in the
United States, and Yankee Certificates of Deposit which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets in the
securities of any one issuer (except cash and cash instruments,
securities issued or guaranteed by the U.S. government, its agencies,
or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements).
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, that have
been in operation for less than three years.
INVESTING IN FOREIGN SECURITIES
The Fund will not invest more than 5% of the value of its total assets
in foreign securities which are not publicly traded in the United
States.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest
in marketable securities secured by real estate or interests in real
estate, and it may invest in the marketable securities of companies
investing or dealing in real estate.

INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs, although it may invest in the
marketable securities of companies which invest in or sponsor such
programs.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts,
although it may invest in the marketable securities of companies which
invest or deal in or sponsor such programs.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities.
MAKING LOANS
The Fund will not make loans, except through the purchase or holding of
securities in accordance with its investment objective, policies, and
limitations and through repurchase agreements.
The purchase of a portion of an issue of such securities distributed
publicly, whether or not the purchase is made on the original issuance,
is not considered the making of a loan. The Fund will not enter into
repurchase agreements with securities dealers if such transactions
constitute the purchase of an interest in such dealer under applicable
law.
Lending portfolio securities shall be permitted where the borrower of
such securities provides 100% collateral in the form of cash or U.S.
government securities. This collateral must be valued daily and should
the market value of the loaned securities increase, the borrower must
furnish additional collateral to the fund. During the time portfolio
securities are on loan, the Fund retains the right to any dividends or
interest or other distribution paid on the securities and any increase

in their market value. Loans will be subject to termination at the
option of the Fund or the borrower.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the officers and Directors of the Fund or its Adviser owning
individually more than 1/2 of 1% of the issuer's securities together
own more than 5% of the issuer's securities. This limitation does not
apply to the Fund's securities.
PURCHASING RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities laws.
DEALING IN PUTS AND CALLS
The Fund will not write, purchase, or sell puts, calls, or any
combination thereof.
PURCHASING SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies,
except purchases in the open market involving only customary brokerage
commissions and as a result of which not more than 5% of the value of
its total assets would be invested in such securities, or except as
part of a merger, consolidation, or other acquisition.
SELLING SHORT
The Fund will not make short sales of securities or maintain short
positions, unless:
oduring the time the short position is open, it owns an equal amount
of the securities sold or securities readily and freely convertible
into or exchangeable, without payment of additional consideration,
for securities of the same issue as, and equal in amount to, the
securities sold short; and

onot more than 10% of the Fund's net assets (taken at current value)
is held as collateral for such sales at any one time.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may invest in up to
10% of the voting securities of any one issuer and may exercise its
voting powers consistent with the best interests of the Fund. From time
to time, the Fund, together with other investment companies advised by
subsidiaries or affiliates of Federated Investors, may together buy and
hold substantial amounts of a company's voting stock. All such stock
may be voted together.
In some such cases, the Fund and the other investment companies might
collectively be considered to be in control of the company in which
they have invested.
In some cases, Directors, agents, employees, officers, or others
affiliated with or acting for the Fund, its adviser, or affiliated
companies might possibly become directors of companies in which the
Fund holds stock.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if as a result of such purchase
more than 25% of the value of the Fund's assets would be invested in
one any industry. However, the Fund may at times invest more than 25%
of the value of its assets in cash or cash items (including bank time
and demand deposits such as certificates of deposits), securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or instruments secured by these money market
instruments, such as repurchase agreements, for temporary or defensive
purposes.

The above investment limitations cannot be changed without shareholders
approval. The following limitation, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in this limitation becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its total assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Fund did not make loans, borrow money, or sell securities short in
excess of 5% of the value of its net assets during the last fiscal year and
has no present intent to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings association having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment to be
"cash items."

FEDERATED HIGH INCOME BOND FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated High Income Bond Fund, Inc., and principal
occupations.

John F. Donahue@*

Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company .

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; Director or
Trustee of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village

Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly, President,
Naples Property Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee of the Funds; formerly, Vice Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman of
the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director

Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director

Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;

Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.

* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board between meetings of
the Board.
Officers and Directors own less than 1% of the Fund's outstanding Shares.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Federated Utility Fund, Inc.;
High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;

Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
As of May 7, 1996, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Shares for its clients), Jacksonville,
Florida, owned approximately 4,592,368 Shares (9.37% of Class A Shares).
As of May 7, 1996, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Shares for its clients), Jacksonville,
Florida, owned approximately 1,461,972 Shares (6.26% of Class B Shares).
As of May 7, 1996, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Shares for its clients), Jacksonville,
Florida, owned approximately 1,763,248 Shares (30.40% of Class C Shares).

OFFICERS AND DIRECTORS COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +

John F. Donahue, $0 $0 for the Fund and
Chairman and Director 54 other investment companies in the Fund
Complex

J. Christopher Donahue, $0 $0 for the Fund and
Executive Vice President 16 other investment companies in the Fund
Complex
and Director
Thomas G. Bigley, ++ $1,531.53 $86,331 for the Fund and
Director 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $1,654.00 $115,760 for the Fund and
Director 54 other investment companies in the Fund
Complex
William J. Copeland, $1,654.00 $115,760 for the Fund and
Director 54 other investment companies in the Fund
Complex
James E. Dowd, $1,654.00 $115,760 for the Fund and
Director 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,531.53 $104,898 for the Fund and
Director 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,654.00 $115,760 for the Fund and
Director 54 other investment companies in the Fund
Complex
Peter E. Madden, $1,531.53 $104,898 for the Fund and
Director 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,531.53 $104,898 for the Fund and
Director 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $1,531.53 $104,898 for the Fund and

Director 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$1,531.53 $104,898 for the Fund and
Director 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,531.53 $104,898 for the Fund and
Director 54 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended March 31, 1996.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee of 15 additional Funds.
DIRECTOR LIABILITY
The Articles of Incorporation provide that the Directors will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment Adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue.

The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding or sale of any
security or for anything done or omitted by it except acts or omissions
involving willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
March 31, 1996, 1995, and 1994, the Adviser earned $4,997,589, $3,519,356 ,
and $3,435,904 , respectively, which were reduced by $38,726, $213,067, and
$219,155 , respectively, because of undertakings to limit the Fund's
expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the Adviser will
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.

This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS

The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the Adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The Adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the fiscal
years ended March 31, 1996, 1995, and 1994, the Fund paid total brokerage
commissions of $4,678, $8,051, and $20,036, respectively.
Although investment decisions for the Fund are made independently from those
of the other accounts managed by the Adviser, investments of the type the
Fund may make may also be made by those other accounts. When the Fund and
one or more other accounts managed by the Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
Adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Fund or the size of the position
obtained or disposed of by the Fund. In other cases, however, it is believed

that coordination and the ability to participate in volume transactions will
be to the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectuses. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's administrator. Prior to March
1, 1994, Federated Administrative Services, Inc., served as the Fund's
administrator. Both former Administrators are subsidiaries of Federated
Investors. (For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be referred to
as the "Administrators.") For the fiscal years ended March 31, 1996, 1995
and 1994, the Administrators earned $504,162, $355,220 and $489,385,
respectively. . Dr. Henry J. Gailliot, an officer of the Adviser, holds
approximately 20% of the outstanding common stock and serves as a director
of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Fund's portfolio investments. The fee paid for this service is based upon
the level of the Fund's average net assets for the period plus out-of-pocket
expenses.

TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund are Arthur Anderson LLP,
Pittsburgh, PA.
PURCHASING SHARES

Except under certain circumstances described in the prospectus, Shares are
sold at their net asset value (plus a sales charge on Class A Shares only)
on days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the prospectus under "How to Purchase
Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
As explained in the prospectus, with respect to the Shares of the Fund, the
Fund has adopted a Shareholder Services Plan, and, with respect to Class B
Shares and Class C Shares, the Fund has adopted a Distribution Plan. These
arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances, answering routine

client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will
be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objective. By
identifying potential investors whose needs are served by the Fund's
objective and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal period ending March 31, 1996, payments in the amount of
$940,723 were made by Class B Shares pursuant to the Distribution Plan.
For the fiscal period ending March 31, 1996, payments in the amount of
$331,380 were made by Class C Shares pursuant to the Distribution Plan.
In addition, for this period, payments in the amounts of $993, 413 (Class A
Shares), $313, 574 (Class B Shares) and $102,572 (Class C Shares), were made
pursuant to the Shareholder Services Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Shareholder Services acts as the
shareholder's agent in depositing checks and converting them to federal
funds.

PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp. or their affiliates and their
immediate family members, or any investment dealer who has a sales agreement
with Federated Securities Corp., and their spouses and children under 21,
may buy Shares at net asset value without a sales charge and are not subject
to a contingent deferred sales charge to the extent the financial
institution through which the Shares are sold agrees to waive any initial
payment to which it might otherwise be entitled. Shares may also be sold
without sales charges to trusts or pension or profit sharing plans for these
persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market value of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange, if
available;
o for most short-term obligations, according to the average of the last
offer to buy and the last offer to sell the security, as provided by
independent pricing services;
o for short-term obligations, according to the prices as furnished by an
independent pricing service or at fair value as determined in good
faith by the Directors; or

o for short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market
data.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deferred sales charge. Redemption procedures are explained in the
prospectus under "How to Redeem Shares." Although the transfer agent does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost for the wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND

Although the Fund intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price, in whole or in
part, by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed
in determining net asset value and selecting the securities in a manner the
Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Fund is obligated to redeem Shares for any
shareholder in cash up to the lesser of $250,000 or 1% of a class of Shares'
net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them

before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The Fund's dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on securities
held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or

oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the Shares. Any loss by a shareholder on
Shares held for less than six months and sold after a capital gains
distribution will be treated as a long-term capital loss to the extent
of the capital gains distribution.
TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the one-year,
five-year and ten-year periods ended March 31, 1996, were 10.02% ,15.00% and
10.35%, respectively
The Fund's average annual total returns for Class B Shares for the one year
ended March 31, 1996 and for the period from September 27, 1994 (date of
initial public offering) to March 31, 1996, were 8.32% and 9.09%,
respectively.
The Fund's average annual total returns for Class C Shares for the one-year
period ended March 31, 1996, and for the period from April 30, 1993 (date of
initial public offering) to March 31, 1996, were 13.22% and 8.67%,
respectively.
The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the offering price per Share at the end of
the period. The number of Shares owned at the end of the period is based on
the number of Shares purchased at the beginning of the period with $1,000,
less any applicable sales charge, adjusted over the period by any additional
Shares, assuming a quarterly reinvestment of all dividends and

distributions. Any applicable contingent deferred sales charge is deducted
from the ending value of the investments based on the lesser of the original
purchase price or the offering price of Shares redeemed.
Cumulative total return reflects the Class C Shares' total performance over
a specific period of time. This total return assumes and is reduced by the
payment of the maximum sales charge, if applicable. The Class C Shares'
total return is representative of only eleven months of investment activity
since the start of performance.
YIELD

The Fund's yields for Class A Shares, Class B Shares, and Class C Shares
were 8.70%, 8.29% and 8.31%, respectively, for the thirty-day period ended
March 31, 1996.
The yield for all classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the SEC) earned by any
class of Shares over a thirty-day period by the maximum offering price per
Share of any class of Shares on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the amount of
income generated during the thirty-day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by any class
of Shares because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to
shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.

PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
A class of Shares' performance fluctuates on a daily basis largely because
net earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and
income dividends and takes into account any change in net asset value
over a specific period of time. From time to time, the Fund will quote
its Lipper ranking in the high current yield funds category in
advertising and sales literature.

o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their risk-
adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed-rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The average
maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month,
three-month, twelve-month, and ten-year periods and year-to-date.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX is composed of
the same types of issues as defined above. However, the average
maturity of the bonds included on this index approximates 22 years.
Advertisements and sales literature for any class of Shares may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
any class of Shares based on monthly reinvestment of dividends over a
specified period of time.
From time to time, the Fund may advertise the performance of any class of
Shares using charts, graphs, and descriptions, compared to federally insured
bank products, including certificates of deposit and time deposits, and to
money market funds using the Lipper Analytical Services money market
instruments average.
Advertisements may quote performance information which does not reflect the
effect of a sales charge or contingent deferred sales charge, as applicable.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors. These traders handle
trillions of dollars in annual trading volume.

In the corporate bond sector, as of December 31, 1995, Federated Investors
managed 10 money market funds, and 14 bond funds with assets approximating
$11.5 billion, and $2.7 billion, respectively. Federated Investor's
corporate bond decision making--based on intensive, diligent credit
analysis--is backed by over 20 years of experience in the corporate bond
sector. In 1972, Federated Investors introduced one of the first high-yield
bond funds in the industry. In 17 years ending December 1995, Federated
Investor's high-yield portfolios experienced a default rate of just 1.86%,
versus 3.10% for the market as a whole. In 1983, Federated Investors was one
of the first fund managers to participate in the asset-backed securities
market, a market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt

entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

* source Investment Company Institute

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated Investor's
service to financial professionals and institutions has earned it high
rankings in several DALBAR Surveys. The marketing effort to these firms is
headed by James F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended March 31, 1996, are
incorporated herein by reference to the Annual Report of the Fund dated
March 31, 1996 (File Nos. 811-2782 and 2-60103). A copy of this report may
be obtained without charge by contacting the Fund.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Incorporated by reference to the
Annual Report of Registrant dated March 3l, l996 pursuant to
Rule 411 under the Securities Act of 1933.) (File Nos. 2-
60103 and 811-2782);
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant, as amended; +
(2) (i)Copy of By-Laws of the Registrant as Restated and
Amended; +
(ii)Copy of Amendment to By-Laws effective August 26,
1987; +
(3) Not applicable;
(4) Copies of Specimen Certificates for Shares of Capital
Stock for Class A Shares, Class B Shares, and Class C
Shares of the Registrant (17);
(5) Conformed copy of Investment Advisory Contract of the
Registrant (14);
(6) (i) Conformed copy of Distributor's Contract of the
Registrant, through and including Exhibit C (16);
(ii) Conformed copy of Exhibit D to Distributor's
Contract(18);

(iii) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and
Service Agreement; Mutual Funds Service Agreement
from Item 4(b)(6) of the Cash Trust Series II
Registration Statement on Form N-1A, filed with
the Commission on July 24, 1995. (File Numbers 33-
38550 and 811-6269).
(7) Not applicable;
(8) (i)..........Conformed copy of Custodian Contract of
the Registrant(18);
(ii)..........Conformed copy of Agency Agreement of the
Registrant (14);

+ Exhibits have been filed electronically.

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 33 on Form N-1A filed February 25, 1993 (File Nos. 2-
60103 and 811-2782).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 38 on Form N-1A filed July 26, 1994 (File Nos. 2-60103
and 811-2782).
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 39 on Form N-1A filed July 29, 1994 (File Nos. 2-60103
and 811-2782).
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 40 on Form N-1A filed May 25, 1995 (File Nos. 2-60103 and
811-2782).

(9) (i) Conformed copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Service, Shareholder Recordkeeping and Custody Services
Procurement ; +
(ii) The responses described in Item 24(b)(6) are hereby
incorporated by reference.
(iii) The Registrant hereby incorporates the conformed
copy of the Shareholder services Sub-Contract between
National Pensions Alliance, Ltd. and Federated
Shareholder Services from Item 24(b)(9)(ii) of the
Federated GNMA Trust Registration Statement on Form N-
1A, filed with the Commission on March 26, 1996. (File
Nos. 2-75670 and 811-3375).
(10) Not applicable;
(11) Conformed copy of Consent of Independent Public
Accountants;+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) The responses described in Item 24(b)(6)are hereby
incorporated by reference.
(ii)Conformed copy of Rule 12b-1 Plan of the Registrant,
through and including Exhibit B (16);
(iii)Conformed copy of Exhibit C to the Rule 12b-1
Plan(18).

(16) Copy of Schedule for Computation of Yield Calculation
(10);
(17) Financial Data Schedule; +
(18) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of
the World Investment series, Inc. Registration Statement
on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed Copy of Power of Attorney;+

Item 25. Persons Controlled by or Under Common Control with Registrant:

None

+ Exhibits have been filed electronically.

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed July 18, 1988 (File Nos. 2-60103
and 811-2782).

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of May 7, 1996

Shares of Capital Stock
($0.01 per Share par value)

Class A Shares 29,445
Class B Shares 11,134
Class C Shares 3,020

Item 27. Indemnification:

Indemnification is provided to Officers and Directors of the
Registrant pursuant to Section (f) of the Eighth paragraph of
Registrant's Articles of Incorporation. The Investment Advisory
Contract between the Registrant and Federated Advisers ("Adviser")
provides that, in the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the obligations or
duties under the Investment Advisory Contract on the part of
Adviser, Adviser shall not be liable to the Registrant or to any
shareholder for any act or omission in the course of or connected
in any way with rendering services or for any losses that may be
sustained in the purchase, holding, or sale of any security.
Registrant's Directors and Officers are covered by an Investment
Trust Errors and Omissions Policy.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Directors, Officers,

and controlling persons of the Registrant by the Registrant
pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy
as expressed in the Act and, therefore, is unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by Directors, Officers, or controlling persons of the
Registrant in connection with the successful defense of any act,
suit, or proceeding) is asserted by such Directors, Officers, or
controlling persons in connection with the shares being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issues.

Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for
Directors, Officers, and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or
otherwise, the Registrant is aware of the position of the
Securities and Exchange Commission as set forth in Investment
Company Act Release No. IC-11330. Therefore, the Registrant
undertakes that in addition to complying with the applicable
provisions of the Articles of Incorporation or otherwise, in the
absence of a final decision on the merits by a court or other body
before which the proceeding was brought, that an indemnification

payment will not be made unless in the absence of such a decision,
a reasonable determination based upon factual review has been made
(i) by a majority vote of a quorum of non-party Directors who are
not interested persons of the Registrant or (ii) by independent
legal counsel in a written opinion that the indemnitee was not
liable for an act of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties. The Registrant
further undertakes that advancement of expenses incurred in the
defense of a proceeding (upon undertaking for repayment unless it
is ultimately determined that indemnification is appropriate)
against an Officer, Director, or controlling person of the
Registrant will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security
for his undertaking; (ii) the Registrant is insured against losses
arising by reason of any lawful advances; or (iii) a majority of a
quorum of disinterested non-party Directors or independent legal
counsel in a written opinion makes a factual determination that
there is reason to believe the indemnitee will be entitled to
indemnification.

Item 28. Business and Other Connections of Investment Adviser:

For a description of the other business of the investment adviser,
see the section entitled "Fund Information - Management of the
Fund" in Part A. The affiliations with the Registrant of four of
the Trustees and one of the Officers of the investment adviser are
included in Part A of this Registration Statement under
"Management of the Fund - Officers and Directors." The remaining

Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation
is: Mark D. Olson, Partner, Halbrook & Bayard, 107 W. Market,
Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are: William D.
Dawson, III, Henry A. Frantzen, Mark L. Mallon, and J. Thomas
Madden, Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins, Jonathan
C. Conley, Mark Durbiano, J. Alan Minteer, Mary Jo Ochson, and
Robert J. Ostrowski, Senior Vice Presidents; J. Scott Albrecht,
Joseph M. Balestrino, Randall A. Bauer, David F. Belton, David A.
Briggs, Kenneth J. Cody, Deborah A. Cunningham, Michael P.
Donnelly, Linda A. Duessel, Kathleen Foody-Malus, Thomas M.
Franks, Edward C. Gonzales, Timothy E. Keefe, Stephen A. Keen,
Mark S. Kopinski, Jeff A. Kozemchek, Marian R. Marinack, Susan M.
Nason, Frederick L. Plautz, Jr., Charles A. Ritter, James D.
Roberge, Frank Semack, William F. Stotz, Edward J. Tiedge, Sandra
L. Weber,and Christopher H. Wiles, Vice Presidents; Thomas R.
Donahue, Treasurer, and Stephen A. Keen, Secretary. The business
address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, PA 15222-3779. These
individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration
Statement.

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 55 filed on July 23, 1992.(File No. 2-33490 and File No.
811-1890)

Item 29. Principal Underwriters:

(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following open-end
investment companies: 111 Corcoran Funds; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; BayFunds; Blanchard Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust; Independence One
Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty U.S.

Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan
Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; and World
Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.-
1999.

Item 29. Principal Underwriters:

Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High Income Bond
Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust; Independence One
Mutual Funds; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan
Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; and World
Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary

John B. Fisher President-Institutional Sales, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --

Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)

Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Assistant Secretary, --

Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent and Dividend Boston, MA 02266-8600
Disbursing Agent")

Federated Adminstrative Services Federated Investors Tower
("Adminstrator") Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600

Item 31. Management Services: Not applicable

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED HIGH INCOME BOND
FUND, INC., certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 29th day of May, 1996.

FEDERATED HIGH INCOME BOND FUND, INC.

BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 29, 1996

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By:/s/Charles H. Field
Charles H. Field Attorney In Fact May 29, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

Richard B. Fisher* President

Edward C. Gonzales* Executive Vice President

J. Christopher Donahue* Executive Vice President and Director
David M. Taylor Treasurer
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr.* Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK

ARTHUR ANDERSEN LLP

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in Post-
Effective Amendment No. 41 to Form N-1A Registration Statement of Federated
High Income Bond Fund, Inc.,(formerly Liberty High Income Bond Fund, Inc.)of
our report dated May 15, 1996, on the financial statements of Federated High
Income Bond Fund, Inc. as of March 31, 1996, included in or made part of
this registration statement.

/s/Arthur Anderson LLP

ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania,

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED HIGH INCOME BOND
FUND, INC., and the Assistant General Counsel of Federated Investors, and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place
and stead, in any and all capacities, to sign any and all documents to be
filed with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other documents in connection thterewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection
thereiwth, as fully to all intents and purposes as each of them might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ John F. Donahue Chairman and Director May 3, 1996
John F. Donahue (Chief Executive Officer)

/s/ Richard B. Fisher President May 3, 1996
Richard B. Fisher

/s/ J. Christopher Donahue Executive Vice President
May 3, 1996
J. Christopher Donahue and Director

/s/ David M. Taylor Treasurer
David M. Taylor (Principal Financial and May 3, 1996
Accounting Officer)

/s/ Thomas G. Bigley Director May 3, 1996
Thomas G. Bigley

/s/ John T. Conroy, Jr. Director May 3, 1996
John T. Conroy, Jr.

/s/ William J. Copeland Director May 3, 1996
William J. Copeland

/s/ James E. Dowd Director May 3, 1996
James E. Dowd

/s/ Lawrence D. Ellis, M.D. Director May 3, 1996
Lawrence D. Ellis, M.D.

/s/ Edward L. Flaherty, Jr. Director May 3, 1996
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Director May 3, 1996
Peter E. Madden

/s/ Gregor F. Meyer Director May 3, 1996
Gregor F. Meyer

/s/ John E. Murray, Jr. Director May 3, 1996
John E. Murray, Jr.
/s/ Wesley W. Posvar Director May 3, 1996
Wesley W. Posvar

/s/ Marjorie P. Smuts Director May 3, 1996
Marjorie P. Smuts

Sworn to and subscribed before me this 3rd day of May, 1996.

/s/ Marie M. Hamm

Exhibit 9(I) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania corporation, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf
of itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so
indicated on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
if so indicated on Exhibit, and the Company desires to accept such
appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer
agency services (as herein defined) if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the
Company desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment
Company with regard to fund accounting for the Investment Company, and/or the
Funds, and/or the Classes, and in connection therewith undertakes to perform
the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the board;
secondarily, if a designated pricing service does not provide a price
for a security which the Company believes should be available by market
quotation, the Company may obtain a price by calling brokers designated
by the investment adviser of the fund holding the security, or if the
adviser does not supply the names of such brokers, the Company will
attempt on its own to find brokers to price those securities; thirdly,
for securities for which no market price is available, the Pricing
Committee of the Board will determine a fair value in good faith.
Consistent with Rule 2a-4 of the 40 Act, estimates may be used where
necessary or appropriate. The Company's obligations with regard to the
prices received from outside pricing services and designated brokers or
other outside sources, is to exercise reasonable care in the
supervision of the pricing agent. The Company is not the guarantor of
the securities prices received from such agents and the Company is not
liable to the Fund for potential errors in valuing a Fund's assets or
calculating the net asset value per share of such Fund or Class when
the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser
the securities prices used in calculating the net asset value of the
fund, for its use in preparing exception reports for those prices on
which the adviser has comment. Further, upon receipt of the exception
reports generated by the adviser, the Company diligently pursues
communication regarding exception reports with the designated pricing
agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further agrees
to surrender promptly to the Investment Company such records upon the
Investment Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
One, shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company. Out-of-
pocket disbursements shall include, but shall not be limited to, the
items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to
federal, state and other governmental agencies; fees of Trustees or
Directors of the Investment Company; independent auditors expenses;
legal and audit department expenses billed to the Company for work
performed related to the Investment Company, the Funds, or the Classes;
law firm expenses; organizational expenses; or other expenses not
specified in this Article 3 which may be properly payable by the Funds
and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing Fund Accounting Services. Such person or persons may be
affiliates of the Company, third-party service providers, or they may
be officers and employees who are employed by both the Company and the
Investment Company; provided, however, that the Company shall be as
fully responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no
obligation shall be incurred on behalf of the Investment Company, the
Funds, or the Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth
in Article 5 of this Agreement in return for the compensation set forth in
Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its
portfolios:
A. prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter (which has
already been prepared and filed), the By-laws and minutes of meetings
of the Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements
for the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous
offering of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who
will be responsible for the management of certain of the Investment
Company's affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section 4,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the
Investment Company. Where applicable, such records shall be maintained by
the Company for the periods and in the places required by Rule 31a-2 under
the 1940 Act. The books and records pertaining to the Investment Company
which are in the possession of the Company shall be the property of the
Investment Company. The Investment Company, or the Investment Company's
authorized representatives, shall have access to such books and records at
all times during the Company's normal business hours. Upon the reasonable
request of the Investment Company, copies of any such books and records shall
be provided promptly by the Company to the Investment Company or the
Investment Company's authorized representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any
other laws, rules and regulations of government authorities having
jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Investment Company, including the
compensation of the Company employees who serve as trustees or directors or
officers of the Investment Company. The Investment Company shall be
responsible for all other expenses incurred by the Company on behalf of the
Investment Company, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing fees,
fees of outside counsel and independent auditors, or other professional
services, organizational expenses, insurance premiums, fees payable to
persons who are not the Company's employees, trade association dues, and
other expenses properly payable by the Funds and/or the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation
for its services rendered hereunder an administrative fee at an annual rate
per Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The Company
will maintain detailed information about the compensation and out of pocket
expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in
this Article 9 may increase annually upon each March 1 anniversary of this
Agreement over the minimum fee during the prior 12 months, as calculated
under this agreement, in an amount equal to the increase in Pennsylvania
Consumer Price Index (not to exceed 6% annually) as last reported by the U.S.
Bureau of Labor Statistics for the twelve months immediately preceding such
anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Company in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement. The Company
shall be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Investment Company) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant
to such advice. Any person, even though also an officer, director,
trustee, partner, employee or agent of the Company, who may be or
become an officer, director, trustee, partner, employee or agent of the
Investment Company, shall be deemed, when rendering services to the
Investment Company or acting on any business of the Investment Company
(other than services or business in connection with the duties of the
Company hereunder) to be rendering such services to or acting solely
for the Investment Company and not as an officer, director, trustee,
partner, employee or agent or one under the control or direction of the
Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained in
this Article 10 shall apply, however, it is understood that if in any
case the Investment Company may be asked to indemnify or hold the
Company harmless, the Investment Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question,
and it is further understood that the Company will use all reasonable
care to identify and notify the Investment Company promptly concerning
any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Investment
Company. The Investment Company shall have the option to defend the
Company against any claim which may be the subject of this
indemnification. In the event that the Investment Company so elects,
it will so notify the Company and thereupon the Investment Company
shall take over complete defense of the claim, and the Company shall in
such situation initiate no further legal or other expenses for which it
shall seek indemnification under this Article. the Company shall in no
case confess any claim or make any compromise in any case in which the
Investment Company will be asked to indemnify the Company except with
the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for each
Fund's Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund ("Shareholder(s)"),
including without limitation any periodic investment plan or periodic
withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company
as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer books
of the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, the Company shall, on or before the payment date
of any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution which is
payable in cash and request the Custodian to make available
sufficient funds for the cash amount to be paid out. The Company
shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to the
Shareholder's account, for certificated Funds and/or Classes,
delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the classification
of transactions for each state on the system prior to
activation and thereafter monitor the daily activity for each
state. The responsibility of the Company for each Fund's
(and/or Class's) state blue sky registration status is
limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky
compliance and the reporting of such transactions and
accounts to the Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Investment Company shall supply the Company with a sufficient
supply of blank Share certificates and from time to time shall renew
such supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized by
the Investment Company and shall bear the seal of the Investment
Company or facsimile thereof; and notwithstanding the death,
resignation or removal of any officer of the Investment Company
authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Investment Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as
agreed upon between the parties and as may be added to or amended from
time to time. Such fees may be changed from time to time subject to
written agreement between the Investment Company and the Company.
Pursuant to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The Company
will charge the Fund the same fees for each such Class or sub-component
the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a custodian
(the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has
been approved by the Board as being eligible for selection by the
Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature
and amount of disbursements made on account of the each Fund with
respect to each custodial agreement; and (iii) such other information
as the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the 1940 Act
and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter
be referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time.
In addition, any other expenses incurred by the Company at the request
or with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Four of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Investment Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Company, or the Fund, and the Company
are satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract for
the performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or
(2) such other provider of services duly registered as a transfer
agent under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent
on the part of the Investment Company subcontract for the performance
of such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with
an Agent selected by the Investment Company, other than as described in
B. and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the Board
of the Investment Company with a certificate of the Secretary of
the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing
the original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of any
Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and
in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;
(4) all requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements and
in good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on
all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice, provided that such action is
not in violation of applicable federal or state laws or regulations,
and is in good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by the Investment Company of Fund for use in
the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment Company
or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the
offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such action
is not in violation of applicable federal or state laws or regulations.
The Company, its agents and subcontractors shall be protected and
indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the
officers of the Investment Company or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a co-
transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 23 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue
for 18 month terms. The Agreement can be terminated by either party upon 18
months notice to be effective as of the end of such 18 month period. In the
event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right
to terminate the Agreement upon 60 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard
of its duties within 60 days. The termination date for all original or
after-added Investment companies which are, or become, a party to this
Agreement. shall be coterminous. Investment Companies that merge or dissolve
during the Term, shall cease to be a party on the effective date of such
merger or dissolution.
Should the Investment Company exercise its rights to terminate, all out-of-
pocket expenses associated with the movement of records and materials will be
borne by the Investment Company or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed
by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing signed
by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal
or state regulations or any provision of the Charter. No interpretive or
additional provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779,
or to such other address as the Investment Company or the Company may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
ARTICLE 30. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Company, but bind only the appropriate
property of the Fund, or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all properties
of the Investment Company held by it hereunder. If no such successor agent
shall be appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all
of or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 34 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Investment Company, but bind
only the property of the Fund, or Class, as provided in the Declaration of
Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

By: /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary

FEDERATED SERVICES COMPANY

By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary

EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes

March 1, 1996 FEDERATED HIGH INCOME BOND FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

FEDERATED SERVICES COMPANY provides the following services:

Administrative Services
Fund Accounting Services
Shareholder Recordkeeping Services

Exhibit (2)

FEDERATED HIGH INCOME SECURITIES, INC.

BY-LAWS
AS RESTATED AND AMENDED
(effective October 10, 1986)

FEDERATED HIGH INCOME SECURITIES, INC.

BY-LAWS

ARTICLE I

MEETING OF SHAREHOLDERS

Section 1. ANNUAL MEETINGS. An Annual Meeting of Shareholders of the
Corporation shall be held so long as such meetings are required under the
laws of the State of Maryland. The Annual Meetings of Shareholders of the
Corporation shall be held on the fourth Tuesday of April in each year unless
such day is a legal holiday in which case the meeting shall be held at the
same time on the next succeeding business day which is not a legal holiday.
The business to be transacted at the Annual Meeting shall include the
election of Directors, consideration and action upon the reports of Officers
and Directors, and any other business within the power of the Corporation.

Section 2. SPECIAL MEETINGS. Special Meetings of Shareholders may be
called by the Chairman, or by the Board of Directors; and shall be called by
the Chairman, Secretary or any Director at the request in writing of the
holders of not less than 25% of the outstanding voting shares of the capital
stock of the Corporation (hereinafter, the outstanding voting shares of the
capital stock of the Corporation are referred to as "Shares"). Any such
request shall state the purposes of the proposed meeting.

Section 3. PLACE OF MEETINGS. All meetings of the Shareholders shall
be held at the office of the Corporation in Pittsburgh, Pennsylvania, or at
such other place within or without the State of Maryland as may be fixed by
the party or parties making the call as stated in the notice thereof.

Section 4. NOTICE. Not less than ten or more than ninety days before
the date of every Annual or Special Meeting of Shareholders the Secretary or
an Assistant Secretary shall give to each Shareholder of record notice of
such meeting by mail, telegraph, cable or radio. Such notice shall be deemed
to have been given when deposited in the mail or with a telegraph or cable
office or radio station for transmission to the Shareholder at his address
appearing on the books of the Corporation. It shall not be necessary to set
forth the business proposed to be transacted in the notice of any Annual
Meeting except that any proposal to amend the Charter of the Corporation
shall be set forth in such notice. Notice of a Special Meeting shall state
the purpose or purposes for which it is called.

Section 5. QUORUM. At all meetings of the Shareholders the presence
in person or by proxy of Shareholders entitled to cast a majority in number
of votes shall be necessary to constitute a quorum for the transaction of
business. In the absence of a quorum at any meeting a majority of those
Shareholders present in person every proxy may adjourn the meeting from time
to time to be held at the same place without further notice than by
announcement to be given at the meeting until a quorum, as above defined,
shall be present, whereupon any business may be transacted which might have
been transacted at the meeting originally called had the same been held at
the time so called.

Section 6. VOTING. At all meetings of Shareholders each Shareholder of
the Corporation shall be entitled to one vote or fraction thereof for each
Share standing in his name on the books of the Corporation on the date for
the determination of Shareholders entitled to vote at such meeting.

Section 7. PROXIES. Any Shareholder entitled to vote at any meeting
of Shareholders may vote either in person or by proxy, but no proxy which is
dated more than eleven months before the meeting named therein shall be
accepted. Every proxy shall be in writing subscribed by the Shareholder or
his duly authorized attorney and dated, but need not be scaled, witnessed or
acknowledged. All proxies shall be filed with and verified by the Secretary,
or an Assistant Secretary of the Corporation or if the meeting shall so
decide, by the Secretary of the Meeting.

Section 8. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at any meeting of Shareholders may be taken without a
meeting, if a consent in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof, and such
consent is filed with the records of the Corporation.

ARTICLE II

BOARD OF DIRECTORS

Section 1. Powers. The Board of Directors shall have control and
management of the affairs, business and properties of the Corporation. The
shall have and exercise in the name of the Corporation an on behalf of the
Corporation all the rights and privileges legally exercisable by the
Corporation except as otherwise provided by law, the Charter, or these By-
Laws.

Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF
OFFICE. The number of Directors of the Corporation shall be as fixed from
time to time by a majority of the entire Board of Directors by shall be no
less than three nor more than twenty. Directors need not be Shareholders.
The Board of Directors may from time to time by a majority o the entire Board
increase or decrease the number of Directors to such number as they deem
expedient not to be less than three nor more than twenty, however, and fill
the vacancies so created. The term of office of a Director shall not be
affected by any decrease in the number of Directors may by the Board pursuant
to the foregoing authorization. Until the first Annual Meeting of
Shareholders or until successors are duly elected and qualify, the Board of
Directors shall consist of the persons named as such in the Charter. The
Members of the Board of Directors shall be elected by the Shareholders at the
Annual Meeting of Shareholders. Each Director Shall hold office until the
Annual Meeting next held after his election and until the election and
qualification of his successor.

Section 3. PLACE OF MEETING. The Board of Directors may hold its
meetings at such place or places within or without the State of Maryland as
the Board may from time to time determine.

Section 4. ANNUAL MEETINGS. The Board of Directors shall meet for the
election of Officers and any other business as promptly as may conveniently
be done after the adjournment of the Annual Meeting of Shareholders.

Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such intervals and on such dates as the Board may
from time to time designate.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at such times at such places as may be designated at
the call of such meeting. Special meetings shall be called by the Secretary
or Assistant Secretary at the request of the Chairman or any Director.

Section 7. NOTICE. The Secretary or Assistant Secretary shall give,
at least two days before the meeting, notice of each meeting of the Board of
Directors, whether Annual, Regular or Special, to each member of the Board by
mail, telegram or telephone to his last known address. It should not be
necessary to state the purpose or business to be transacted in the notice of
any Annual or Regular meeting. The notice of a Special Meeting shall state
the purpose or purposes for which it is called. Personal attendance at any
meeting by a Director other than to protest the validity of said meeting
shall constitute a waiver of the foregoing requirement of notice.

Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors
may adopt such rules and regulations for the conduct of their meetings and
the management of the affairs of the Corporation as they may deem proper and
not inconsistent with applicable law, the Charter of the Corporation or these
By-Laws.

Section 9. QUORUM. A majority of the total membership of the Board of
directors shall constitute a quorum at any meetings of the Board of
Directors. The action of a majority of Directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors
unless the concurrence of a greater proportion is required for such action by
statute, the Charter of the Corporation, or these By-Laws. In the absence of
a quorum at any meeting a majority of Directors present may adjourn the
meeting from day to day or fur such longer periods as they may designate
without notice other than by announcement at the meeting.

Section 10. RESIGNATIONS. Any Director of the Corporation may resign
at any time by mailing or delivering, or transmitting by radio, telegraph or
cable, written notice to the Chairman of the Board of Directors or to the
Secretary of the Corporation. The Resignation of any Director shall take
effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.

Section 11. REMOVAL. At any meeting of Shareholders duly called
for the purpose, any director may by the vote of a majority of all of the
Shares entitled to vote be removed from office. At the same meeting, the
vacancy in the Board of Directors may be filled by the election of a Director
to serve for the remainder of the term and until the election and
qualification of this successor.

Section 12. VACANCIES. Except as otherwise provided by law, any
vacancy occurring in the Board of Directors for any cause other than by
reason of an increase in the number of Directors may be filled by a majority
is less than a quorum and any vacancy occurring by reason of an increase in
the number of Directors may be filled by action of a majority of the entire
Board of Directors; provided, however, that upon the death, resignation or
removal during any consecutive period of twelve months of more than one-half
of the Directors holding office at the beginning of such period, a
Shareholders' Meeting shall be called forthwith for the propose of electing
an entire new Board, including the vacancies filled pursuant to this Section
of the By-Laws. A Director elected by the Board to fill a vacancy shall be
elected to hold office until the next Annual Meeting of Shareholders or until
his successor is duly elected and qualifies. Notwithstanding the foregoing,
the Shareholders may, at any time during the term of such Director elected to
fill a vacancy, elect some other person to fill said vacancy and thereupon
the election by the Board shall be superseded and such election by the
Shareholders shall be deemed a filling of the vacancy and not a removal and
may be made at any meeting called for such propose.
Section 13. COMPENSATION OF DIRECTORS. The Directors may receive a
stated salary for their services as Directors, and by resolution of the Board
of Directors a fixed fee and expenses of attendance may be allowed for
attendance at each Meeting. Nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity, as
an Officer, Agent or otherwise, and receiving compensation therefor.

Section 14. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any Annual, Regular or Special Meeting of the Board
of Directors may be taken without a meeting if a written consent to such
action is signed by all members of the Board and such written consent is
filed with the minutes of proceedings of the Board.

Section 15. POWER TO DECLARE DIVIDENDS. The Board of Directors is
expressly authorized to determine in accordance with generally accepted
accounting principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine what accounting
periods shall be used by the Corporation for any purpose, whether annual or
any other period, including daily; to set apart out of any funds of the
Corporation such reserves for such purposes at it shall determine and to
abolish the same; to declare and pay dividends and distributions by means of
a formula or other method of determination, at meetings held less frequently
than the frequency of the effectiveness f such declarations; to establish
payment dates for dividends or any other distributions on any basis,
including dates occurring less frequently than the effectiveness of
declarations thereof; and to provide for the payment of declared dividends on
a date earlier or later than the specified payment date in the case of
Shareholders redeeming their entire ownership of shares.

ARTICLE III

EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE. The
Board of Directors, by resolution passed by a vote of at least a majority of
the entire Board, may appoint an Executive Committee, which shall consist of
two (2) or more Directors.

Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring in
the Executive Committee from any cause shall be filled by the Board of
Directors at any Meeting thereof by a vote of the majority of the entire
Board.

Section 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All action by the
Executive Committee shall be reported to the Board of Directors at its
meeting next succeeding such action.

Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The executive Committee
shall fix its own rules of procedure not inconsistent with these By-Laws or
with any directions of the Board of Directors. It shall meet at such times
and places and upon such notice as shall be provided by such rules or by
resolution of the Board of Directors. The presence of a majority shall
constitute a quorum for the transaction of business, and in every case an
affirmative vote of a majority of all the member s of the Committee present
shall be necessary for the taking of any action.

Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals
between the Meetings of the Board of Directors the Executive Committee,
except as limited by the By-Laws of the Corporation or by specific directions
of the Board of Directors, shall possess and may exercise all the powers of
the Board of Directors in the management and direction of the business sand
conduct of the affairs of the Corporation in such manner as the Executive
Committee shall deem for the best interests of the Corporation, and all have
power to authorize the Seal of the Corporation to be affixed to all
instruments and documents requiring same. Notwithstanding the foregoing, the
Executive Committee shall not have the power to elect Directors, increase or
decrease the number of Directors, elect or remove any Officer, declare
dividends, issue shares or recommend to Shareholders any action requiring
Shareholder approval.

Section 6. OTHER COMMITTEES. From time to time the Board of Directors
may appoint any other Committee or Committees for any purpose to the extent
lawful, which shall have such powers as shall be specified in the resolution
of appointment.

Section 7. COMPENSATION. The members of any duly appointed Committee
shall receive such compensation and/or fees as from time to time may be fixed
by the Board of Directors.

Section 8. INFORMAL ACTION BY EXECUTIVE COMMITTEE OR OTHER COMMITTEES.
Any action required or permitted to be taken at any meeting of the Executive
Committee or any other duly appointed Committee may be taken without a
meeting if written consent to such action is signed by all Members of such
Committee and such written consent is filed with the minutes of the
proceedings of such Committee.

Section 9. ADVISORY BOARD. The Directors may appoint an Advisory
Board to consist in the first instance of not less than three (3) members.
Members of such Advisory Board shall not be Directors or Officers and need
not be Shareholders. Members of this Board shall hold office for such period
as the Directors may by resolution provide. Any Member of such Board may
resign therefrom by written instrument signed by him which shall take effect
upon delivery to the Directors. The Advisory Board shall have no legal
powers and shall not perform functions of Directors in any manner, said Board
being intended to act merely in an advisory capacity. Such Advisory Board
shall meet at such times and upon such notice as the Board of Directors may
by resolution provide. The compensation of the Members of the Advisory
Board, if any, shall be determined by the Board of Directors.
ARTICLE IV

OFFICERS

Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall
be Chairman, a President, one or more Vice Presidents, a Treasurer and a
Secretary. The Board of Directors Shall elect or appoint such other Officers
or agents as the business of the Corporation may require including one or
more Assistant Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers. The same person may hold any two offices except
those of President and Vice President.

Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers
shall be elected annually by the Board of Directors at its Annual Meeting
following the Annual Meeting of Shareholders. Each Officer shall hold office
until the Annual Meeting in the next year and until the election and
qualification of his successor. Any vacancy in any of the offices may be
filled for the unexpired portion of the term by the Board of Directors at any
Regular or special Meeting of the Board. The Board of Directors may elect or
appoint additional Officers or agents at any Regular or Special Meeting of
the Board.

Section 3. REMOVAL. Any Officer elected by the Board of Directors may
be removed with or without cause at any time upon a vote of the majority of
the entire Board of Directors. Any other employee of the Corporation may be
removed or dismissed at any time by the Chairman.

Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall take
effect at the date of receipt of each notice or at any later time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any Office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws
for regular election or appointment to such Office.

Section 6. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall be the chief executive officer of the Corporation.
He shall, unless other provisions are made therefor by the Board or Executive
Committee, employ and define the duties of all employees of the Corporation,
shall have the power to discharge any such employees, shall exercise general
supervision over the affairs of the Corporation and shall perform such other
duties as may be assigned to him from time to time by the Board of Directors.
He shall preside at the meetings of Shareholders and the Board of Directors.

Section 7. PRESIDENT. The President, in the absence of the Chairman
of the Board of Directors, shall perform all duties and may exercise any of
the powers of the Chairman of the Board of Directors subject to the control
of the Board. He shall counsel and advise the Chairman of the Board on
matters of major importance and shall perform such other duties as may be
assigned to him from time to time by the Board of Directors. In the absence
of the Chairman of the Board of Directors, the President shall preside at all
meetings of Shareholders.

Section 8. VICE PRESIDENT. The Vice President (or if more than one,
the senior Vice President) in the absence of the President shall perform all
duties and may exercise any of the powers of the President subject to the
control of the Board. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Board of Directors, the
Executive Committee, or the Chairman.

Section 9. SECRETARY. The Secretary shall keep or cause to be kept in
books provided for that purpose the Minutes of the Meetings of Shareholders
and of the Board of Directors; shall see that all Notices are duly given in
accordance with the provisions of these By-Laws and as required by law; shall
be custodian of the records and of the Seal of the Corporation and see that
the Seal is affixed to all documents, the execution of which on behalf of the
Corporation under its Seal is duly authorized; shall keep directly or through
a transfer agent a register of the post office address of each shareholder,
and make all proper changes in such register, retaining and filing his
authority for such entries; shall see that the books, reports, statements,
certificates and all other documents and records required by law are properly
kept and filed; and in general shall perform all duties incident to the
Office of Secretary and such other duties as may from, time to time, be
assigned to him by the Board of Directors, the Executive Committee or the
Chairman.

Section 10. TREASURER. The Treasurer shall have supervision of the
custody of the funds and securities of the Corporation, subject to the
Charter of the Corporation ad applicable law. He shall submit to the Annual
Meeting of Shareholders a statement of the financial condition of the
Corporation and whenever required by the Board of Directors shall make and
render a statement of the accounts of the Corporation and such other
statements as may be required. He shall cause to be kept in books of the
Corporation a full land accurate account of all monies received and paid out
for the account of the Corporation. He shall perform such other duties as
may be from time to time assigned to him by the Board of Directors, the
Executive Committee or the Chairman.

Section 11. ASSISTANT VICE PRESIDENT. The Assistant Vice President or
Vice Presidents of the Corporation shall have such authority and perform such
duties as may be assigned to them by the Board of Directors, the Executive
Committee or the Chairman of the Corporation.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretary or Secretaries and the Assistant Treasurer or Treasurers
shall perform the duties of the Secretary and of the Treasurer, respectively,
in the absence of those Officers and shall have such further powers and
perform such other duties as may be assigned to them respectively by the
Board of Directors or the Executive Committee or the Chairman.

Section 13. SALARIES. The salaries of the Officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.

ARTICLE V

SHARES AND THEIR TRANSFER

Section 1. CERTIFICATES. All certificates for shares shall be signed by
the Chairman or any Vice President and by the Treasurer or Secretary or any
Assistant Treasurer or Assistant Secretary and sealed with the seal of the
Corporation. The signatures may be either manual or facsimile signatures and
the seal may be either facsimile or any other form of seal. Certificates for
shares for which the Corporation has appointed an independent Transfer Agent
and Registrar shall not be valid unless countersigned by such Transfer Agent
and registered by such Registrar. In case any officer who has signed any
certificate ceases to be an officer of the Corporation before the certificate
is issued, the certificate may nevertheless be issued by the Corporation with
the same effect as if the officer had not ceased to be such officer as of the
date of its issuance. Share certificates shall be in such form not
inconsistent with law or the Charter or these By-Laws as may be determined by
the Board of Directors.

Section 2. TRANSFER OF SHARES. Shares shall be transferable on the books
of the Corporation by the holder thereof in person or by duly authorized
attorney upon surrender of the certificate representing the share to be
transferred properly endorsed.
Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The board
of Directors may fix in advance a date as the record date for the purpose of
determining Shareholders entitled to notice of or to vote at any Meeting of
Shareholders or Shareholders to receive payment of any dividend. Such date
shall in any case not be more than 60 days and in case of a Meeting of
Shareholders not less than 10 days prior to the date on which the particular
action requiring such determination of Shareholders is to be taken. In lieu
of fixing a record date the Board of Directors may provide that the share
transfer books of the Corporation shall be closed for a stated period not to
exceed in any case 20 days. If the share transfer books are closed or the
purpose of determining Shareholders entitled to notice of or to vote at a
Meeting of Shareholders such books shall be closed for at least 10 days
immediately preceding such meeting.

Section 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case any Share
certificate is lost, mutilated or destroyed, the Board of Directors may issue
a new certificate in place thereof upon indemnity to the Corporation against
loss and upon such other terms and conditions as the Board may deem
advisable.

Section 5. Transfer Agent and Registrar: Regulations. The Board of
Directors shall have power and authority to make all such rules and
regulations as they may deem expedient concerning the issuance, transfer and
registration of share certificates and may appoint a Transfer Agent and/or
Registrar of Share certificates, and may require all such share certificates
to bear the signature of such Transfer Agent and/or of such Registrar.

ARTICLE VI

AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.

Section 1. AGREEMENTS, ETC. The Bard of Directors or the Executive
Committee may authorize any Officer or Officers, or Agent or Agents of the
Corporation to enter into any Agreement or execute and deliver any instrument
in the name and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and, unless so authorized by the
Board of Directors or by the Executive Committee or by these By-Laws, no
Officer, Agent or Employee shall have any power or authority to bind the
Corporation by any Agreement or engagement or to pledge its credit or to
render it liable pecuniary for any purpose or for any amount.

Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be signed
by such Officer or Officers, Employee or Employees, or Agent or Agents as
shall from time to time be designated by the Board of Directors or the
Executive Committee, or as may be specified in or pursuant to the agreement
between the Corporation and the Bank or Trust Company appointed as
custodian, pursuant to the provisions of the Charter of the Corporation.

Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee or
directions for the transfer of securities belonging to the Corporation shall
be made by such Officer or Officers, Employee or Employees, or Agent or
Agents as may be authorized by the Board of Directors or the Executive
Committee.

Section 4. EVIDENCE OF AUTHORITY. Anyone dealing with the Corporation
shall be fully justified in relying on a copy of a resolution of the Board of
Directors or of any Committee thereof empowered to act in the premises which
is certified as true by the Secretary or an Assistant Secretary under the
seal of the Corporation.

Section 5. DESIGNATION OF A CUSTODIAN. The Corporation shall place and
at all times maintain in the custody of a Custodian all funds, securities and
similar investment owned by the Corporation, with the exception of securities
loaned under a properly authorized Securities Loan Agreement. The Custodian
shall be a bank having not less than $2,000,000 aggregate capital, surplus
and undivided profits and shall be appointed from time to time by the Board
of Directors, which shall fix its remuneration.

Section 6. ACTION UPON TERMINATION OF A CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to
continue to serve, the Board of Directors shall promptly appoint a successor
custodian, but in the event that no successor custodian can be fund who has
the required qualifications and is willing to serve, the Board of Directors
shall call as promptly as possible a special meeting of the Shareholders to
determine whether the Corporation shall function without a custodian or shall
be liquidated. If so directed by vote of the holders of a majority of the
outstanding Shares, the Custodian shall deliver and pay over all property of
the Corporation held by it as specified in such vote.

Section 7. WHEN TO DETERMINE NET ASSET VALUE. The net asset value per
Share of the outstanding Shares shall be determined at such times as the
Board of Directors shall prescribe, provided that such net asset value shall
be determined at least weekly.

ARTICLE VII

BOOKS AND RECORDS

Section 1. LOCATION. The books and records of the Corporation,
including the Stock ledger or ledgers, may be kept in or outside the State of
Maryland at such office or agency of the Corporation as may be from time to
time determined by the Board of Directors.

ARTICLE VIII

MISCELLANEOUS

Section 1. SEAL. The Seal of the corporation shall be a disk
inscribed with the words "Federated High Income Securities, Inc. -
Incorporated Maryland 1977".

Section 2. FISCAL YEAR. The Fiscal Year of the Corporation shall end
on the last day of August in each year.

Section 3. WAIVER OF NOTICE. Whenever under the provisions of these
By-Laws or of any law, the Shareholders or Directors or Members of the
Executive Committee or other Committee are authorized to hold any meeting
after notice or after the lapse of any prescribed period of time, such
meeting may be held without notice or without such lapse of time by the
written waiver of notice signed by every person entitled to notice, or if
every person entitled to notice shall be present at such meeting.

ARTICLE IX

AMENDMENTS

Section 1. The Board of Directors shall have the power, at any Regular
or Special Meeting, if notice thereof be included in the notice of such
Special Meeting, to alter, amend or repeal any By-Laws of the Corporation and
to make new By-Laws.

Section 2. The Shareholders shall have the power, at any Annual
Meeting or at any Special Meeting if notice thereof be included in the notice
of such Special Meeting, to alter, amend or repeal any By-Laws of the

Exhibit 2(ii) under Form N-1A

FEDERATED HIGH INCOME SECURITIES, INC.

AMENDMENT TO BY-LAWS

Effective August 26, 1987

ARTICLE I

MEETING OF SHAREHOLDERS

Section 1. ANNUAL MEETINGS. An annual meeting of shareholders shall be
held only in those years in which one of the following is required to be
acted on by shareholders under the Investment Company Act of 1940: (1)
Election of Directors; (2) Approval of the Investment Advisory Contract;
(3) Ratification of the selection of independent public accountants; and
(4) Approval of a Distribution Agreement. At each annual meeting Directors
shall also be elected, and any other proper business within the power of
shareholder may be transacted. An annual meeting shall be held on a date

Exhibit (1)

ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
FEDERATED HIGH INCOME SECURITIES, INC.

Federated High Income Securities, Inc., a Maryland corporation,
formerly known as Federated High Income Fund, Inc., having its principal
office in Maryland in the City of Baltimore, Maryland (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:

FIRST: The Articles of Incorporation of the Corporation are hereby
amended as follows:

By striking out Article SIXTH and inserting the following in its
place:

"SIXTH:The Board of Directors is empowered to authorize the issuance
from time to time of shares of Capital Stock of the Corporation and/or
securities convertible into shares of its Capital Stock, whether now or
hereafter authorized, upon such terms and conditions and for such
considerations as the Board of Directors may from time to time determine;
provided, however, that the consideration per share to be received by the
Corporation upon the issuance or sale of any shares of its Capital Stock
shall be not less than the greater of the par value per share or the net
asset value per share determined in accordance with the requirements of the
Investment Company Act of 1940 and the applicable rules and regulations of
the Securities and Exchange Commission (or any succeeding governmental
authority) and in conformity with generally accepted accounting practices
and principles."

By striking out paragraph (f) of Article EIGHTH and inserting the
following in its place:

"(f) The Corporation shall indemnify its Officers, Directors,
employees and agents and any person who serves at the request of the
Corporation as a Director, Officer, employee, or agent of another
Corporation, partnership, joint venture, trust or other enterprise to the
extent permitted by Maryland law as amended from time to time."

III

By striking out paragraph (i) of Article EIGHTH and inserting the
following in its place:

"(i) The Corporation reserves the right from time to time to
make any amendment of its Charter now or hereafter authorized by law,
including any amendment which alters the contract rights, as expressly set
forth in its Charter, of any outstanding capital stock."

By inserting a new paragraph (1) in Article EIGHTH as follows:
2

"(1) The Board of Directors of the Corporation is expressly
authorized to issue fractional Shares of the Capital Stock of the
Corporation, and holders of such fractional Shares shall have, on a pro-
rata basis, the same rights as holders of full Shares."

By striking out Article NINTH in its entirety.

By inserting a new paragraph (m) in Article EIGHTH as follows:

"(m) The Corporation, its Directors and Shareholders
acknowledge that the corporate name has been adopted through permission of
Federated Investors, Inc., a Pennsylvania corporation, and agrees that
Federated Investors, Inc. reserves to itself and any successors to its
business the right to withdraw from the Corporation the use of the name
"Federated" and reserves to itself and any successor to its business the
right to grant the non-exclusive right to use the name "Federated" or any
similar name to any other investment company or business enterprise."

VII

By renumbering Article TENTH as Article NINTH.

SECOND:The Board of Directors of the Corporation on November 25, 1977
duly adopted a resolution in which was set forth the foregoing amendment to
the Articles of Incorporation, declaring that said amendment of the

3
Articles of Incorporation as proposed was advisable and directing that it
be submitted for action thereon by the stockholders of the Corporation.

THIRD: The amendment of the Articles of Incorporation as hereinabove
set forth was approved by the stockholders of the Corporation by written
consent without a meeting pursuant to Title 2-505, Corporations and
Associations, Annotated Code of Maryland on November 25, 1977.

FOURTH:The amendment of the Articles of Incorporation of the
Corporation as hereinabove set forth has been duly advised by the Board of
Directors and approved by the stockholders of the Corporation.

IN WITNESS WHEREOF, FEDERATED HIGH INCOME SECURITIES, INC. has caused
these presents to be signed in its name and on its behalf by its Vice
President and its corporate seal to be hereunto affixed and attested to by
its Secretary on this 25th day of November, 1977.

FEDERATED HIGH INCOME SECURITIES, INC.

By: /s/John A. Staley, IV
John A. Staley, IV
President

(Corporate Seal)

Attest:

/s/John W. McGonigle
John W. McGonigle, Secretary
4

COMMONWEALTH OF PENNSYLVANIA )

) ss:
COUNTY OF ALLEGHENY )

I hereby certify that on November 25, 1977, before me, the subscriber,
a Notary Public of the Commonwealth of Pennsylvania in and for the County
of Allegheny, personally appeared JOHN A. STALEY, IV, Vice President of
FEDERATED HIGH INCOME SECURITIES, INC., a Maryland corporation, and in the
name and on behalf of said corporation acknowledged the foregoing Articles
of Amendment to be the corporate act of said corporation; and at the same
time personally appeared JOHN W. McGONIGLE, Secretary of the Corporation,
and made oath in due form of law that the Shareholders of said Corporation
adopted by unanimous consent pursuant to Maryland law to the approval of
the amendment of the Charter of the Corporation therein set forth, and that
the matters and facts set forth in said Articles of Amendment are true to
the best of his knowledge, information and belief.

WITNESS my hand and Notarial Seal the day and year first above
written.

By: /s/Mary Anne Miller
Notary Public
Commission expires: Nov. 15, 1979

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</TABLE>