Federated High Income Bond Fund, Inc.
(formerly, Liberty High Income Bond Fund, Inc.)
20TH SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
ESTABLISHED 1977
FIXED
INCOME
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
Federated High Income Bond Fund, Inc. was created in 1977, and I am pleased
to present the 20th Semi-Annual Report for the fund.
Covering the six-month period from April 1, 1996, to September 30, 1996,
this report begins with an interview with the fund's portfolio manager, Mark
E. Durbiano, Senior Vice President, Federated Advisers. Following his
discussion are graphs depicting the fund's long-term investment performance,
a complete listing of the fund's corporate bond holdings, plus the fund's
financial statements.
Federated High Income Bond Fund, Inc. not only withstood a difficult
environment for bonds during the period, it performed well, as the
high-yield bond market outperformed other bond classes.* Why? Because the
rising economy tended to improve the earnings and cash flow of companies
that issue high-yield bonds. The fund also benefited from good security
selection and broad diversification. The performance of each share class in
terms of total return, income distribution and share price growth is shown
below.**
<TABLE>
<CAPTION>
NET ASSET VALUE INCREASE INCOME TOTAL RETURN
<S> <C> <C> <C>
Class A Shares $11.08 to $11.33 = 2% $0.51 7.10%
Class B Shares $11.08 to $11.33 = 2% $0.47 6.68%
Class C Shares $11.08 to $11.33 = 2% $0.47 6.69%
</TABLE>
On September 30, 1996, the fund's bond holdings were widely diversified. The
fund's bond issues are carefully researched and include nearly 200
high-yield issues across the entire business and industrial spectrum.
During the period, the fund achieved a milestone by topping $1 billion in
assets for the first time in its 20-year history. This growth is the result
of an increase in the fund's share value, as well as the continued
participation of long-time and new shareholders who add to their holdings.
In 1977, during the initial offering of this open-end fund, the assets
amounted to $25 million, and there were less than 20 high-yield bond issues
in the country. Today, millions of individuals and institutions allocate
money to the asset class of high-yield bonds. In fact, today there are
approximately 160 high-yield bond funds with total assets of over $60
billion.
Thank you for investing a portion of your wealth in Federated High Income
Bond Fund, Inc. Your questions, comments, or suggestions about your fund are
always welcome.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
November 15, 1996
* Lower rated bonds involve a higher degree of risk than investment grade
bonds in return for higher yield potential.
** Performance quoted is based on net asset value and reflects past
performance. Performance is not indicative of future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total returns
for the period (based on offering price) for Class A Shares, Class B Shares,
and Class C Shares were 2.30%, 0.93%, and 5.65%, respectively.
INVESTMENT REVIEW
[Graphic]
Mark E. Durbiano
Senior Vice President
Federated Advisers
[Graphic]
HIGH-YIELD BONDS PERFORMED WELL IN WHAT WAS A RELATIVELY POOR PERIOD FOR
MOST FIXED-INCOME SECURITIES. COULD YOU EXPLAIN WHY HIGH-YIELD SECURITIES
PERFORMED SO WELL OVER THE SIX-MONTH PERIOD?
The main factor impacting all fixed-income securities during the period was
the surprising strength in the United States' economy. This strong economic
performance fueled inflationary fears and pushed interest rates higher. For
example, the yield on a 10-year U.S. Treasury bond increased 38 basis points
during the period and 113 basis points since the beginning of 1996.
A strong economy with rising interest rates impacts the high-yield market in
two ways. First, rising interest rates are a negative for high-yield bonds
as they are for all fixed-income securities. In general, when interest rates
rise, bond prices fall. However, the strong economy that causes interest
rates to rise has a silver lining from the high-yield bond perspective. The
strong economy provides a better operating environment for high-yield
issuers -- allowing them to generate higher earnings and cash flow. This
tends to reduce investors' fear of credit-related problems in the high-yield
sector and helps to offset some of the general rise in interest rates.
During the period, the reduction in credit risk associated with a stronger
economy has offset almost all of the general rise in interest rates. As a
result, high-yield bonds outperformed high-quality bonds over the period.
For example, the Lehman Brothers High-Yield Bond Index returned 5.72% while
the Lehman Brothers Aggregate Index returned 2.43% over the period.*
[Graphic]
HOW DID FEDERATED HIGH INCOME BOND FUND, INC. PERFORM?
The fund had a very strong six-month period. Class A Shares, Class B Shares,
and Class C Shares produced total returns of 7.10%, 6.68%, and 6.69%,
respectively. This compares favorably to the Lehman Brothers High-Yield Bond
Index, which returned 5.72% over the period.**
The fund's year-to-date performance also was strong. For the nine-month
period ended September 30, 1996, Class A Shares, Class B Shares, and Class C
Shares total returns of 9.39%, 8.74%, and 8.74% all outperformed the 7.59%
total return of the Lehman Brothers High-Yield Index.***
* The Lehman Brothers Aggregate Bond Index is an unmanaged index comprised
of securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and the Asset-Backed Securities Index.
Lehman Brothers High Yield Bond Index is an unmanaged index which covers the
universe of fixed rate, publicly issued, non-investment grade debt
securities. Actual investments cannot be made in an index.
** Performance quoted is based on net asset value and reflects past
performance. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period (based on offering price) for
Class A Shares, Class B Shares, and Class C Shares were 2.30%, 0.93%, and
5.65%, respectively.
*** Year-to-date (1/1/96 through 9/30/96) total returns based on offering
price for Class A Shares, Class B Shares, and Class C Shares were 4.49%,
2.88%, and 7.69%, respectively.
[Graphic]
WHAT STRATEGIES WERE THE MAJOR INFLUENCES ON FUND PERFORMANCE?
Several factors positively impacted the fund's performance. First, the fund
has a higher percentage invested in the single B sector of the high-yield
market and a lower percentage in the double B sector of the market than the
index. Double B securities tend to be more sensitive to interest rates,
while single B securities tend to be more sensitive to changes in economic
conditions. Therefore, single B securities outperformed over the period
given stronger economic growth and rising interest rates.
Second, the fund benefited from outstanding security selection during the
period -- particularly during the third quarter -- which minimized the
impact of deteriorating credit situations on the fund. For example, the fund
avoided problems in the specialty retail sector, which under-performed the
market in the third quarter after performing very well in the first six
months of 1996, as the bonds of County Seat, Payless Cashways, and Musicland
Stores declined substantially. Finally, corporate mergers and tenders by
companies for their high-yield debt had a substantial positive impact on the
fund. For example, the fund's positions in Park Communications, Pace
Industries, PanAmSat, TransOcean Container, and New World Communications
Group (and its SCI TV subsidiary) were positively impacted, as the companies
either were acquired or announced plans to be acquired by more creditworthy
companies. In addition, G-I Holdings, Doskocil, Waters Technologies, Allied
Waste, and OMI Corp. tendered for their outstanding bonds at attractive
prices.
[Graphic]
WHAT WERE THE FUND'S TOP HOLDINGS AT THE END OF THE PERIOD?
The top 10 holdings were as follows:
<TABLE>
<CAPTION>
% OF PORTFOLIO
<S> <C>
Owens Illinois, Inc. 1.62%
First Nationwide 1.55%
Six Flags Theme Parks 1.51%
Cablevision Systems 1.38%
WestPoint Stevens, Inc. 1.38%
California Energy 1.33%
Vanguard Cellular 1.29%
Ralph's Grocery Co. 1.25%
PanAmSat Corp. 1.22%
Rogers Cablesystems 1.13%
</TABLE>
[Graphic]
WHAT ARE YOUR CURRENT STRATEGIES WITH REGARD TO SECTORS, AS WELL AS YOUR
COMMENTS ON SPECIFIC HOLDINGS?
We continue to overweight the Telecommunications sector. We believe that
issuers like Teleport and Brooks Fiber will benefit from the structural
changes in the telecommunications industry being driven by regulatory
reform. We continue to like the Cable sector both domestically and in the
United Kingdom. In the U.S., strong operating fundamentals, large clusters
of demographically attractive subscribers coupled with ongoing consolidation
activity should improve the creditworthiness of companies like Cablevision
Systems. In the United Kingdom, companies like Telewest and International
Cabletel will increase their creditworthiness as they build out their
integrated cable and telephone infrastructure. We also like the TV and Radio
Broadcasting sector given its strong operation fundamentals, tremendous
franchise value, and consolidation activity being driven by regulatory
reform.
We remain underweight in the Retail sector given continued difficult
industry conditions and the unattractive franchises of the retailers that
issue high-yield bonds. Finally, we have taken and will attempt to continue
to take advantage of the relatively strong high-yield market to sell
positions where the fundamentals have not met our expectations. For example,
positions in Flagstar and Geneva Steel were sold during the third quarter
due to potential credit problems. Given the reduction of the yield
differential between high-yield bonds and high-quality fixed-income
securities that has occurred, bonds of companies whose operating performance
disappoints investors should decline substantially.
[Graphic]
WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD BOND MARKET?
We continue to like the outlook for high-yield bonds. Moderate growth in the
U.S. economy coupled with strong demand for high-yield securities should
lead to narrower yield spreads between high-yield bonds and higher quality
bonds. However, given the attractive performance of high-yield bonds so far
in 1996, credit discipline remains important. We continue to look for
issuers whose underlying operations are strong and their ability to service
their debt is improving. Our experience in the high-yield market over the
past 20 years confirms the importance of intensive research and spreading
risk through diversification.
SHAREHOLDER MEETING RESULTS
A Special Meeting of the Shareholders of Federated High Income Bond Fund,
Inc. (formerly, Liberty High Income Bond Fund, Inc.) was held on September
20, 1996. On July 16, 1996, the record date for shareholders voting at the
meeting, there were 52,355,954 total outstanding shares. The following item
was considered by shareholders and the results of their voting were as
follows:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY TO
AGENDA ITEM FOR AGAINST NON-VOTES VOTE
<C> <S>
1. To approve or disapprove the removal of the fund's fundamental investment
limitation restricting the fund's investment in restricted securities to 10%
of its total assets.
</TABLE>
<TABLE>
<C> <C> <C> <C>
33,634,854 2,717,889 2,920,541 0
</TABLE>
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $19,000 IN THE CLASS A SHARES OF
FEDERATED HIGH INCOME BOND FUND, INC. ON 11/30/77, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$129,322 ON 9/30/96. YOU WOULD HAVE EARNED A 10.72%* AVERAGE ANNUAL TOTAL
RETURN FOR THE 19-YEAR INVESTMENT LIFESPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 9/30/96, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 8.21%, 12.35%, and 10.64%, respectively. Class B
Shares' average annual one-year and since inception (9/28/94) total returns
were 6.49% and 10.71%, respectively. Class C Shares' average annual one-year
and since inception (5/1/93) total returns were 11.37% and 9.41%,
respectively.*
[Graphic] omitted, see appendix A
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50%
sales load applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 19 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $68,187.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated High Income Bond Fund, Inc. on 11/30/77, reinvested your dividends
and capital gains, and didn't redeem any shares, you would have invested
only $19,000, but your account would have reached a total value of $68,187*
by 9/30/96. You would have earned an average annual total return of 11.80%.
A practical investment plan helps you pursue a high level of income through
corporate bonds. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. This investment plan works for you even if
you invest only $1,000 annually. You can take it one step at a time. Put
time, money and compounding to work!
[Graphic] omitted, see appendix B
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED HIGH INCOME BOND FUND, INC. --
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR HIGH MONTHLY INCOME
Chuck Colby is a fictional investor who, like many other shareholders, is
looking for high monthly income opportunities.
Chuck is an attorney on his way up the corporate ladder. On September 30,
1986, he invested $5,000 in the Class A Shares of Federated High Income Bond
Fund, Inc.
As this chart shows, over 10 years, his original $5,000 investment has grown
to $13,747. This represents a 10.64% average annual total return.* For
Chuck, that means extra money toward the construction of his first home.
[Graphic] omitted, see appendix C
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- 95.3%
AEROSPACE & DEFENSE -- 0.6%
$ 5,750,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 $ 6,181,250
AUTOMOTIVE -- 3.7%
5,900,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 6,460,500
2,500,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%, 8/1/2004 2,737,500
7,325,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 7,764,500
1,725,000 (a)Delco-Remy Corp., Sr. Sub. Note, 10.625%, 8/1/2006 1,772,438
6,500,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 6,711,250
2,250,000 JPS Automotive Products Corp., Sr. Note, 11.125%, 6/15/2001 2,311,875
6,000,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 6,255,000
1,000,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 1,047,500
2,000,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 1,975,000
Total 37,035,563
BANKING -- 1.6%
4,900,000 (a)First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 5,138,875
6,100,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 6,664,250
3,600,000 First Nationwide Holdings, Inc., Sr. Note, 12.50%, 4/15/2003 3,892,500
Total 15,695,625
BEVERAGE & TOBACCO -- 0.6%
6,750,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%, 2/15/2003 6,108,750
BROADCAST RADIO & TV -- 8.8%
4,900,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 5,194,000
3,650,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 3,695,625
3,075,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 3,413,250
4,150,000 Chancellor Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 4,150,000
1,650,000 Granite Broadcasting Corp., Sr. Sub. Deb., 12.75%, 9/1/2002 1,819,125
7,375,000 Granite Broadcasting Corp., Sr. Sub. Note, 10.375%, 5/15/2005 7,504,063
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
BROADCAST RADIO & TV -- CONTINUED
$ 9,385,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 $ 9,056,525
4,000,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 3,230,000
3,550,000 (a)Park Communications, Inc., Sr. Note, 13.75%, 5/15/2004 4,703,750
4,300,000 Pegasus Media, Note, 12.50%, 7/1/2005 4,622,500
7,850,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 8,399,500
7,700,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 8,075,375
6,500,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 6,597,500
3,825,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 3,882,375
1,875,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 1,734,375
5,900,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 5,914,750
5,575,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 5,588,938
2,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 2,160,000
Total 89,741,651
BUSINESS EQUIPMENT & SERVICES -- 2.0%
1,000,000 Iron Mountain, Inc., Sr. Sub. Note, 10.125%, 10/1/2006 1,022,500
5,250,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 5,565,000
5,600,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 6,132,000
6,600,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 7,144,500
Total 19,864,000
CABLE TELEVISION -- 12.9%
5,350,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 3,143,125
11,600,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 8,990,000
3,250,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 3,388,125
4,200,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 4,714,500
4,500,000 (a)CS Wireless Systems, Inc., Unit, 0/11.375%, 3/1/2006 2,323,125
4,925,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 4,826,500
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CABLE TELEVISION -- CONTINUED
$ 1,500,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, 5/15/2016 $ 1,533,750
4,600,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 4,473,500
3,125,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 3,156,250
5,625,000 Charter Communications Southeast, LP, Sr. Note, 11.25%, 3/15/2006 5,786,719
3,250,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 2,055,625
6,250,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 6,859,375
12,250,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 7,870,625
3,750,000 Diamond Cable Co., Sr. Disc. Note, 0/13.25%, 9/30/2004 2,859,375
8,575,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 5,938,188
7,750,000 Insight Communication Co., Sr. Sub. Note, 11.25%, 3/1/2000 7,924,375
6,000,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%, 10/15/2003 4,590,000
9,200,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%, 4/15/2005 6,221,500
200,000 International Cabletel, Inc., Sr. Note, 0/11.50%, 2/1/2006 121,000
5,000,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 5,450,000
4,000,000 (a)Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/2006 4,140,000
7,900,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 4,898,000
3,250,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 3,282,500
2,500,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 2,550,000
5,500,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 5,651,250
10,950,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 7,062,750
8,600,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 4,601,000
4,800,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 4,992,000
3,000,000 Wireless One, Inc., Unit, 0/13.50%, 8/1/2006 1,650,000
Total 131,053,157
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CHEMICALS & PLASTICS -- 6.9%
$ 7,500,000 Arcadian Partners LP, Sr. Note, Series B, 10.75%, 5/1/2005 $ 8,306,250
1,000,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 1,007,500
4,650,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 5,184,750
7,350,000 Foamex LP, Sr. Sub. Deb., 11.875%, 10/1/2004 7,827,750
5,664,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 4,941,840
2,320,000 G-I Holdings, Inc., Sr. Note, 10.00%, 2/15/2006 2,343,200
9,000,000 Harris Chemical North America, Inc., Sr. Note, 10.25%, 7/15/2001 9,247,500
5,783,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 6,303,470
6,300,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 6,079,500
6,325,000 Sterling Chemicals Holdings, Inc., Unit, 0/13.50%, 8/15/2008 3,874,063
1,650,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 1,744,875
3,950,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 3,851,250
2,150,000 Viridian, Inc., Deb., 10.50%, 3/31/2014 2,375,750
6,750,000 Viridian, Inc., Note, 9.75%, 4/1/2003 7,011,563
Total 70,099,261
CLOTHING & TEXTILES -- 1.6%
2,000,000 Dan River Inc., Sr. Sub. Note, 10.125%, 12/15/2003 1,990,000
13,825,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 13,963,250
Total 15,953,250
CONSUMER PRODUCTS -- 3.4%
4,000,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 4,150,000
1,000,000 (a)E & S Holdings, Sr. Sub. Note, 10.375%, 10/1/2006 1,025,000
3,100,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 3,286,000
5,000,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 5,550,000
4,750,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 5,343,750
9,250,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 9,041,875
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
CONSUMER PRODUCTS -- CONTINUED
$ 1,000,000 (a)Shop Vac Corp., Sr. Secd. Note, 10.625%, 9/1/2003 $ 1,035,000
4,750,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 4,916,250
Total 34,347,875
CONTAINER & GLASS PRODUCTS -- 2.6%
1,680,000 (b)Kane Industries, Inc., Sr. Sub. Disc. Note, 2/1/1998 0
1,000,000 Owens-Illinois, Inc., Note, 10.00%, 8/1/2002 1,045,000
2,750,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 2,880,625
8,600,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 8,836,500
3,500,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 3,622,500
3,000,000 Packaging Resources Inc., Sr. Note, 11.625%, 5/1/2003 3,120,000
6,750,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 7,020,000
Total 26,524,625
COSMETICS & TOILETRIES -- 0.6%
6,100,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 6,321,125
ECOLOGICAL SERVICES & EQUIPMENT -- 1.0%
5,500,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 5,390,000
7,850,000 (b)Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 5,181,000
Total 10,571,000
ELECTRONICS -- 0.4%
4,000,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 4,160,000
FINANCIAL INTERMEDIARIES -- 0.2%
1,950,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 1,964,625
FOOD & DRUG RETAILERS -- 2.7%
5,500,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 5,775,000
3,000,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 2,955,000
8,450,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 8,576,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
FOOD & DRUG RETAILERS -- CONTINUED
$ 4,050,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 $ 4,090,500
6,000,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%, 5/15/2007 6,390,000
Total 27,787,250
FOOD PRODUCTS -- 2.2%
5,700,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 5,557,500
5,250,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 5,328,750
10,250,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb., 0/13.00%,
8/15/2005 4,356,250
1,000,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 925,000
1,000,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 820,000
5,300,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 5,790,250
Total 22,777,750
FOOD SERVICES -- 0.5%
4,675,000 Americold Corp., Sr. Sub. Note, 12.875%, 5/1/2008 4,862,000
FOREST PRODUCTS -- 4.1%
4,250,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,526,250
250,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 254,688
5,150,000 (a)Four M Corp., Sr. Secd. Note, 12.00%, 6/1/2006 5,510,500
4,350,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 4,447,875
10,300,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 10,171,250
5,850,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 6,318,000
1,000,000 (a)Stone Container Corp., Rating Adjustable Senior Notes, 11.875%,
8/1/2016 1,055,000
8,550,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 9,105,750
Total 41,389,313
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
HEALTHCARE -- 2.4%
$ 6,200,000 (a)Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 $ 6,541,000
3,350,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 3,433,750
2,500,000 Paracelsus Healthcare Corp., Sr. Sub. Note, 10.00%, 8/15/2006 2,581,250
1,525,000 (a)Prime Succession Acquisition Corp., Sr. Sub. Note, 10.75%, 8/15/2004 1,616,500
8,850,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 9,646,500
Total 23,819,000
HOME PRODUCTS & FURNISHINGS -- 0.6%
3,000,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 3,240,000
2,625,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 2,762,813
Total 6,002,813
HOTELS, MOTELS, INNS & CASINOS -- 0.8%
6,000,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 6,195,000
2,500,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 2,175,000
Total 8,370,000
INDUSTRIAL PRODUCTS & EQUIPMENT -- 2.1%
6,500,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 7,215,000
5,750,000 (a)Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 5,922,500
4,175,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 4,279,375
3,675,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 3,858,750
Total 21,275,625
LEISURE & ENTERTAINMENT -- 3.9%
10,500,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 6,365,625
3,700,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 3,801,750
4,650,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 4,824,375
4,450,000 (a)Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 4,539,000
4,000,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 4,300,000
17,250,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 15,352,500
Total 39,183,250
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
MACHINERY & EQUIPMENT -- 1.7%
$ 5,125,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 $ 5,406,875
6,100,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 6,832,000
4,850,000 (a)Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 5,104,625
Total 17,343,500
METALS & MINING -- 0.8%
1,000,000 (a)Commonwealth Aluminum Corp., Sr. Sub. Note, 10.75%, 10/1/2006 1,022,500
7,300,000 (a)Royal Oak Mines, Sr. Sub. Note, 11.00%, 8/15/2006 7,537,250
Total 8,559,750
OIL & GAS -- 3.3%
5,425,000 Clark USA, Inc., Sr. Note, Series B, 10.875%, 12/1/2005 5,547,063
4,000,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 4,110,000
2,500,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 2,787,500
3,750,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 3,806,250
3,250,000 HS Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 3,217,500
7,375,000 Mesa Operating Company, Sr. Sub. Disc. Note, 0/11.625%, 7/1/2006 4,738,438
3,100,000 Mesa Operating Company, Sr. Sub. Note, 10.625%, 7/1/2006 3,262,750
5,200,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 5,538,000
Total 33,007,501
PRINTING & PUBLISHING -- 1.7%
9,600,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 7,392,000
3,750,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 3,993,750
6,025,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%, 2/1/2006 5,859,313
Total 17,245,063
REAL ESTATE -- 0.8%
7,150,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 7,695,188
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
RETAILERS -- 0.7%
$ 7,000,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 $ 7,140,000
SERVICES -- 0.8%
7,633,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 8,205,475
STEEL -- 3.9%
5,250,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 5,131,875
3,575,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 3,566,063
2,400,000 Bar Technologies, Inc., Company Guarantee, 13.50%, 4/1/2001 2,424,000
3,825,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 3,748,500
9,425,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 9,000,875
7,400,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 7,807,000
1,800,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 1,903,500
5,250,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 9.875%, 12/15/2001 5,053,125
1,000,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 1,010,000
Total 39,644,938
SURFACE TRANSPORTATION -- 4.1%
4,000,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 3,950,000
7,750,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 8,331,250
5,200,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 5,122,000
4,650,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 4,638,375
2,750,000 Sea Containers Ltd., Sr. Sub. Note, 12.50%, 12/1/2004 3,011,250
8,500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 8,797,500
2,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 2,918,750
5,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 4,762,500
Total 41,531,625
TELECOMMUNICATIONS & CELLULAR -- 9.5%
2,500,000 American Communications Services Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 1,331,250
1,700,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%, 3/15/2008 986,000
14,900,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 9,200,750
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- CONTINUED
$ 8,150,000 Cellular Communications International, Inc., Sr. Disc. Note, 0/13.25%,
8/15/2000 $ 5,338,250
4,500,000 Dial Call Communications, Inc., Unit, 0/12.25%, 4/15/2004 3,105,000
2,850,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 3,113,625
8,750,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 5,490,625
11,200,000 (a)Millicom International Cellular S. A., Sr. Sub. Disc. Note, 0/13.50%,
6/1/2006 6,426,000
1,350,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%, 11/1/2007 1,073,250
7,750,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 5,056,875
4,500,000 Nextlink Communications, L.L.C., Sr. Note, Series AI, 12.50%,
4/15/2006 4,680,000
4,575,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 4,758,000
9,600,000 PanAmSat, LP, Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 8,784,000
3,000,000 ProNet, Inc., Sr. Sub. Note, 11.875%, 6/15/2005 2,820,000
4,000,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 4,130,000
11,475,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 7,458,750
1,900,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 1,964,125
7,750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 7,401,250
13,075,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 13,042,313
Total 96,160,063
UTILITIES -- 1.8%
2,000,000 (a)CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 2,040,000
13,150,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 13,445,875
2,950,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 2,973,128
Total 18,459,003
TOTAL CORPORATE BONDS (IDENTIFIED COST $940,609,741) 966,080,864
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- 0.5%
BROADCAST RADIO & TV -- 0.1%
400 (a)Pegasus Media, Class B $ 120,000
30,000 (b)Sullivan Broadcast Holdings Inc., Class B 300,000
Total 420,000
BUILDING & DEVELOPMENT -- 0.0%
4,696 (b)Atlantic Gulf Communities Corp. 22,893
CABLE TELEVISION -- 0.0%
14,400 (b)Wireless One, Inc., Warrants 72,000
CHEMICALS & PLASTICS -- 0.0%
30,000 (b)Uniroyal Technology Corp., Warrants 54,375
CONGLOMERATES -- 0.3%
353 (b)MAFCO Acquisition, Warrants 0
775,071 (b)Triton Group Ltd. 532,861
186,810 (b)Walter Industries, Inc. 2,405,180
Total 2,938,041
CONSUMER PRODUCTS -- 0.0%
4,750 (b)Hosiery Corp. of America, Inc., Class A 26,125
3,750 (a)(b)IHF Capital, Inc., Warrants 215,625
Total 241,750
CONTAINER & GLASS PRODUCTS -- 0.0%
71,200 (b)Kane Industries, Inc., Warrants 0
ECOLOGICAL SERVICES & EQUIPMENT -- 0.0%
25,200 (b)ICF Kaiser International, Inc., Warrants 12,600
FOOD & DRUG RETAILERS -- 0.1%
185,579 (b)Grand Union Co. 1,183,066
FOOD PRODUCTS -- 0.0%
315,000 (b)Specialty Foods Acquisition Corp. 236,250
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
COMMON STOCKS -- CONTINUED
HOTELS, MOTELS, INNS & CASINOS -- 0.0%
1,750 (b)Motels of America, Inc. $ 35,438
INDUSTRIAL PRODUCTS & EQUIPMENT -- 0.0%
6,589 (b)Haynes International, Inc. 26,356
PRINTING & PUBLISHING -- 0.0%
583 (b)Advanstar Corp., Warrants 0
7,500 (b)Affiliated Newspaper 225,000
46 (b)Sullivan Graphics, Inc. 12
Total 225,012
STEEL -- 0.0%
2,400 (a)(b)Bar Technologies, Inc., Warrants 144,000
TELECOMMUNICATIONS & CELLULAR -- 0.0%
8,050 (b)Cellular Communications International, Inc., Warrants 70,438
4,500 (b)NEXTEL Communications, Inc., Warrants 90
Total 70,528
TOTAL COMMON STOCKS (IDENTIFIED COST $30,226,337) 5,682,309
PREFERRED STOCKS -- 1.4%
PRINTING & PUBLISHING -- 1.0%
102,671 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 10,472,444
TELECOMMUNICATIONS & CELLULAR -- 0.4%
2,918 PanAmSat Corp., PIK Pfd., 12.75% 3,632,910
TOTAL PREFERRED STOCKS (IDENTIFIED COST $12,840,301) 14,105,354
(C)REPURCHASE AGREEMENTS -- 0.8%
$ 7,885,000 BT Securities Corporation, 5.72%, dated 9/30/1996, due 10/1/1996
(AT AMORTIZED COST) 7,885,000
TOTAL INVESTMENTS (IDENTIFIED COST $991,561,379)(D) $993,753,527
</TABLE>
(a) Indicates a private placement security which is restricted as to resale.
The total market value of private placement secuities held at September 30,
1996 was $67,932,688, which represents 6.7% of total net assets.
(b) Non-income producing security.
(c) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to
$991,561,379. The net unrealized appreciation of investments on a federal
tax basis amounts to $2,192,148 which is comprised of $41,587,683
appreciation and $39,395,535 depreciation at September 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,014,208,477) at September 30, 1996.
The following acronym(s) are used throughout this portfolio:
GTD -- Guaranty
LP -- Limited Partnership
PIK -- Payment in Kind
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
KANE INDUSTRIES, INC.
On March 18, 1994, Kane Industries, Inc., along with two of its affiliates,
Kane, Inc. and Alford Industries, Inc., filed for protection under Chapter
11 of the U.S. Bankruptcy Code. The Fund's investment adviser is unable to
predict the outcome or timing of these proceedings.
MID-AMERICAN WASTE SYSTEMS, INC.
On February 15, 1996, Mid-American Waste Systems failed to make its
scheduled interest payment. Currently, the company is in negotiations with
its debt holders and has retained an investment bank to evaluate its
options. The unofficial subordinated bondholders group has retained legal
counsel and financial advisors and is monitoring the situation closely.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities (identified and tax cost $991,561,379) $ 993,753,527
Cash 43,071
Income receivable 21,520,952
Receivable for investments sold 810,000
Receivable for shares sold 5,316,657
Total assets 1,021,444,207
LIABILITIES:
Payable for investments purchased $6,272,427
Payable for shares redeemed 468,231
Payable for taxes withheld 37,798
Accrued expenses 457,274
Total liabilities 7,235,730
Net Assets for 89,540,925 shares outstanding $ 1,014,208,477
NET ASSETS CONSIST OF:
Paid in capital 1,033,745,067
Net unrealized appreciation of investments 2,192,148
Accumulated net realized loss on investments (23,262,264)
Undistributed net investment income 1,533,526
Total Net Assets $ 1,014,208,477
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($573,425,051 / 50,628,231 shares outstanding) $11.33
Offering Price Per Share (100/95.50 of $11.33)* $11.86
Redemption Proceeds Per Share $11.33
CLASS B SHARES:
Net Asset Value Per Share ($358,888,305 / 31,682,794 shares outstanding) $11.33
Offering Price Per Share $11.33
Redemption Proceeds Per Share (94.50/100 of $11.33)** $10.71
CLASS C SHARES:
Net Asset Value Per Share ($81,895,121 / 7,229,900 shares outstanding) $11.33
Offering Price Per Share $11.33
Redemption Proceeds Per Share (99.00/100 of $11.33)** $11.22
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 708,956
Interest 47,731,168
Total income 48,440,124
EXPENSES:
Investment advisory fee $3,404,600
Administrative personnel and services fee 343,184
Custodian fees 60,663
Transfer and dividend disbursing agent fees and expenses 365,816
Directors'/Trustees' fees 7,166
Auditing fees 10,500
Legal fees 2,598
Portfolio accounting fees 80,325
Distribution services fee -- Class B Shares 1,084,658
Distribution services fee -- Class C Shares 264,904
Shareholder services fee -- Class A Shares 685,013
Shareholder services fee -- Class B Shares 361,553
Shareholder services fee -- Class C Shares 88,301
Share registration costs 66,910
Printing and postage 56,774
Insurance premiums 5,557
Taxes 73,603
Miscellaneous 7,028
Total expenses 6,969,153
Waivers --
Waiver of shareholder services fee -- Class A Shares $(100,203)
Waiver of shareholder services fee -- Class C Shares (1,064)
Total waivers (101,267)
Net expenses 6,867,886
Net investment income 41,572,238
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,969,849
Net change in unrealized appreciation of investments 18,389,392
Net realized and unrealized gain on investments 21,359,241
Change in net assets resulting from operations $62,931,479
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
SEPTEMBER 30, MARCH 31,
1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 41,572,238 $59,138,421
Net realized gain (loss) on investments ($2,969,849 and $1,232,954,
respectively, as computed for federal tax purposes) 2,969,849 2,635,257
Net change in unrealized appreciation (depreciation) 18,389,392 26,130,711
Change in net assets resulting from operations 62,931,479 87,904,389
NET EQUALIZATION CREDITS (DEBITS) -- 399,359 589,954
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (25,233,410) (45,324,508)
Class B Shares (12,052,584) (10,149,148)
Class C Shares (2,965,130) (3,664,765)
Distributions in excess of net investment income
Class A Shares -- (235,156)
Class B Shares -- (52,656)
Class C Shares -- (19,014)
Change in net assets resulting from distributions to shareholders (40,251,124) (59,445,247)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME) --
Proceeds from sale of shares 218,049,842 357,820,276
Net asset value of shares issued to shareholders in payment of
distributions declared 20,786,119 29,736,515
Cost of shares redeemed (73,386,867) (104,637,232)
Change in net assets resulting from share transactions 165,449,094 282,919,559
Change in net assets 188,528,808 311,968,655
NET ASSETS:
Beginning of period 825,679,669 513,711,014
End of period (including undistributed net investment income of
$1,533,526 and $0, respectively) $ 1,014,208,477 $825,679,669
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30 YEAR ENDED MARCH 31,
1996 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET
ASSET VALUE,
BEGINNING
OF
PERIOD $11.08 $10.54 $10.99 $11.19 $10.80 $ 8.79 $ 8.96 $10.99 $11.20 $12.53 $12.53
INCOME
FROM
INVESTMENT
OPERATIONS
Net investment
income 0.53 1.00 1.01 1.05 1.13 1.23 1.21 1.33 1.40 1.42 0.85
Net realized
and
unrealized gain
(loss) on
investments 0.23 0.55 (0.43) (0.19) 0.41 1.99 (0.14) (1.98) (0.20) (1.31) --
Total from
investment
operations 0.76 1.55 0.58 0.86 1.54 3.22 1.07 (0.65) 1.20 0.11 0.85
LESS
DISTRIBUTIONS
Distributions
from
net investment
income (0.51) (1.00) (1.03) (1.06) (1.15) (1.21) (1.24) (1.38) (1.41) (1.44) (0.85)
Distributions in
excess of net
investment
income(b) -- (0.01) -- -- -- -- -- -- -- -- --
Total (0.51) (1.01) (1.03) (1.06) (1.15) (1.21) (1.24) (1.38) (1.41) (1.44) (0.85)
distributions
NET ASSET
VALUE, END
OF PERIOD $11.33 $11.08 $10.54 $10.99 $11.19 $10.80 $ 8.79 $ 8.96 $10.99 $11.20 $12.53
TOTAL
RETURN(C) 7.10% 15.24% 5.74% 7.82% 15.39% 38.83% 14.20% (6.82%) 11.34% 1.30% 7.09%
RATIOS TO
AVERAGE
NET ASSETS
Expenses 1.20%* 1.22% 1.21% 1.18% 1.08% 1.02% 1.03% 1.02% 1.00% 1.05% 1.02%*
Net investment
income 9.46%* 9.07% 9.64% 9.27% 10.44% 12.40% 14.62% 13.01% 12.55% 12.37% 11.72%*
Expense waiver/
reimbursement(d) 0.04%* 0.06% 0.05% 0.05% 0.08% -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $573,430 $530,203 $448,040 $439,149 $417,015 $351,087 $252,147 $282,149 $379,876 $360,409 $390,160
Portfolio
turnover 29% 53% 52% 76% 49% 37% 32% 40% 43% 52% 25%
</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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1996 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.08 $10.54 $10.57
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.49 0.95 0.51
Net realized and unrealized gain (loss) on investments 0.23 0.51 (0.07)
Total from investment operations 0.72 1.46 0.44
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.91) (0.47)
Distributions in excess of net investment income(b) -- (0.01) --
Total distributions (0.47) (0.92) (0.47)
NET ASSET VALUE, END OF PERIOD $11.33 $11.08 $10.54
TOTAL RETURN(C) 6.68% 14.31% 4.47%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99%* 2.02% 2.02%*
Net investment income 8.70%* 8.29% 9.47%*
Expense waiver/reimbursement(d) -- 0.01% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $358,891 $238,055 $33,295
Portfolio turnover 29% 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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1996 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.08 $10.54 $10.99 $11.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.49 0.92 0.94 0.92
Net realized and unrealized gain (loss) on investments 0.23 0.54 (0.44) (0.23)
Total from investment operations 0.72 1.46 0.50 0.69
LESS DISTRIBUTIONS
Distributions from net investment income (0.47) (0.91) (0.95) (0.88)
Distributions in excess of net investment income(b) -- (0.01) -- --
Total distributions (0.47) (0.92) (0.95) (0.88)
NET ASSET VALUE, END OF PERIOD $11.33 $11.08 $10.54 $10.99
TOTAL RETURN(C) 6.69% 14.35% 4.91% 6.23%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.98%* 2.00% 1.98% 1.99%*
Net investment income 8.70%* 8.30% 8.90% 8.54%*
Expense waiver/reimbursement(d) 0.00% 0.03% 0.05% 0.05%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $81,896 $57,422 $32,376 $24,360
Portfolio turnover 29% 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.
(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.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
1. ORGANIZATION
Federated High Income Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers three classes of
shares: Class A Shares, Class B Shares, and Class C Shares. 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.
Effective March 31, 1996, the Board of Directors (the "Directors") changed
the name of the Fund from Liberty High Income Fund, Inc. to Federated High
Income Bond Fund, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- Listed corporate bonds, (other fixed income and
asset-backed securities), and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked
price as furnished by an independent pricing service. Listed equity
securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices provided
by an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At March 31, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $25,900,070, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION EXPIRATION
YEAR AMOUNT
<C> <C>
1999 $ 1,835,453
2000 $ 24,064,617
</TABLE>
EQUALIZATION -- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE(S) COST
<S> <C> <C>
Delco-Remy Corp., Sr. Sub. Note 7/26/96 $1,725,000
First Nationwide Escrow Corp., Sr. Sub. Note 9/13/96 - 9/16/96 4,937,500
Park Communications, Inc., Sr. Note 5/6/96 3,550,000
CS Wireless Systems, Inc., Unit 2/16/96 2,761,147
Lenfest Communications Inc., Sr. Sub. Note 6/20/96 - 8/5/96 4,023,170
E&S Holdings, Sr. Sub. Note 9/24/96 1,000,000
Shop Vac Corp., Sr. Secd. Note 9/25/96 1,000,000
Four M Corp., Sr. Secd. Note 5/23/96 - 9/6/96 5,245,000
Stone Container Corp., Rating Adjustable Senior Notes 7/17/96 1,000,000
Dade International, Inc., Sr. Sub. Note 4/30/96 - 7/15/96 6,321,062
Prime Succession Acquisition Corp., Sr. Sub. Note 8/13/96 1,525,000
Euramax International PLC, Sr. Sub. Note 9/18/96 5,794,687
Cobblestone Golf Group, Inc., Sr. Note 5/29/96 - 7/25/96 4,494,250
Tokheim Corp., Sr. Sub. Note 8/16/96 - 9/12/96 4,953,750
Commonwealth Aluminum Corp., Sr. Sub. Note 9/16/96 1,000,000
Royal Oak Mines, Sr. Sub. Note 8/5/96 - 8/28/96 7,297,500
Millicom International Cellular S.A., Sr. Sub. Disc. Note 5/24/96 - 9/12/96 6,099,463
CalEnergy Co., Inc., Sr. Note 9/18/96 1,992,320
Pegasus Media, Class B 6/30/95 - 1/2/96 18,750
MAFCO Acquisition, Warrants 7/1/91 80,625
IHF Capital, Inc., Warrants 1/4/94 37,050
Bar Technologies, Inc., Warrants 8/27/96 0
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
INVESTMENT RISK -- Although the Fund has a diversified portfolio, the Fund
has 98.6% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The risk
of loss due to default by the issuer may be significantly greater for the
holders of high yielding securities because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. The
Fund held defaulted securities with a value aggregating $5,181,000,
representing 0.51% of the Fund's net assets at September 30, 1996.
OTHER -- Investment transactions are accounted for on the trade date.
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
3. CAPITAL STOCK
At September 30, 1996, par value shares authorized were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE
CAPITAL STOCK
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 4,000,000
Class B Shares 2,000,000
Class C Shares 4,000,000
Total Shares Authorized 10,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,861,378 64,542,902 9,541,576 $ 104,603,929
Shares issued to shareholders in payment of
distributions declared 1,214,292 13,322,095 2,113,256 23,120,673
Shares redeemed (4,306,609) (47,330,834) (6,317,775) (69,286,926)
Net change resulting from Class A
Share transactions 2,769,061 30,534,163 5,337,057 $ 58,437,676
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 11,368,375 125,254,744 19,654,299 $ 215,828,295
Shares issued to shareholders in payment of
distributions declared 517,763 5,684,078 424,401 4,675,171
Shares redeemed (1,691,397) (18,600,786) (1,750,975) (19,251,125)
Net change resulting from Class B
Share transactions 10,194,741 112,338,036 18,327,725 $ 201,252,341
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 MARCH 31, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 2,561,575 28,252,196 3,399,750 $ 37,388,053
Shares issued to shareholders in payment of
distributions declared 162,142 1,779,946 176,754 1,940,671
Shares redeemed (676,575) (7,455,247) (1,466,781) (16,099,182)
Net change resulting from Class C
Share transactions 2,047,142 22,576,895 2,109,723 $ 23,229,542
Net change resulting from
share transactions 15,010,944 165,449,094 25,774,505 $ 282,919,559
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisors, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.75% of the Fund's average daily net assets.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class B and Class C Shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
FEDERATED HIGH INCOME BOND FUND, INC.
(FORMERLY, LIBERTY HIGH INCOME BOND FUND, INC.)
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FServ is based
on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ also maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of the
Fund's average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $414,855,141
SALES $258,438,973
</TABLE>
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
Federated Investors
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314195108
Cusip 314195207
Cusip 314195306
8110103 (11/96)
Appendix
A. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an initial investment of
$19,000 in Federated High Income Bond Fund, Inc. in 1977 would have grown
to $129,322. The `x'' axis reflects the cost of investment, the ``y'' axis
reflects computation periods from 1977 to 1996, and the right margin
reflects a total investment range from $0 to $135,000. The chart further
indicates the ending market value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested dividends.
B. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an yearly investment of
$1,000 in Federated High Income Bond Fund, Inc. in 1977 would have grown to
$68,187. The `x'' axis reflects the cost of investment, the ``y'' axis
reflects computation periods from 1977 to 1996, and the right margin
reflects a total investment range from $0 to $70,000. The chart further
indicates the ending market value attributable to principal, as well as the
ending market value attributable to capital gains and reinvested dividends.
C. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an investment of $5,000 in
Federated High Income Bond Fund, Inc. in 1986 would have grown to $13,747.
The `x'' axis reflects the cost of investment, the ``y'' axis reflects
computation periods from 1986 to 1996, and the right margin reflects a
total investment range from $0 to $15,000. The chart further indicates the
ending market value attributable to principal, as well as the ending market
value attributable to capital gains and reinvested dividends
