LIBERTY EQUITY INCOME FUND INC, N-30D, 1996-05-24

LIBERTY EQUITY INCOME FUND INC
N-30D, 1996-05-24

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FEDERATED INVESTORS
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
10TH ANNUAL REPORT
MARCH 31, 1996
ESTABLISHED 1986
GROWTH & INCOME

President's Message

Dear Fellow Shareholder:

I am pleased to present the 10th Annual Report for Federated Equity Income
Fund, Inc., formerly known as Liberty Equity Income Fund, Inc. The fund's
name now begins with "Federated" to make it easy for investors to locate all
Federated Funds in mutual fund listings of newspapers and other publications.
In addition, Fortress Shares of the fund are now known as Class F Shares.

This report covers the 12-month period from April 1, 1995, through
March 31, 1996. It begins with an interview with the fund's portfolio
manager, Christopher H. Wiles, Vice President, Federated Advisers. Following
this discussion are three additional items of shareholder interest. First is
a series of graphs which display the fund's performance with income dividends
reinvested, and the benefit of making additional investments in the fund
shares with dividends reinvested. Second is a complete listing of the fund's
stocks and bonds. Third is the publication of the fund's financial
statements.

The fund's portfolio responded to a highly favorable stock market environment
during the 12-month reporting period. Shareholders experienced very fine
performance. The fund's total performance adds capital appreciation, income
dividends, and realized gain to show a 30% increase for the 12-month
reporting period. The performance of the fund's share classes for the 12-
month period ended March 31, 1996, is listed below.*
<TABLE>
<CAPTION>
INCOME CAPITAL GAINS
TOTAL RETURN DISTRIBUTIONS DISTRIBUTIONS NET ASSET VALUE INCREASE
<S> <C> <C> <C> <C>
Class A Shares 30.37% $0.41 $0.25 $11.50 to $14.26=24%
Class B Shares 29.40% $0.32 $0.25 $11.50 to $14.26=24%
Class C Shares 29.39% $0.31 $0.25 $11.50 to $14.26=24%
Class F Shares 30.06% $0.38 $0.25 $11.51 to $14.26=24%
</TABLE>

Over the 12-month reporting period, fund net assets grew from $179.8
million on March 31, 1995, to $391.2 million on March 31, 1996. This robust
growth reflects a sizable increase in the value of fund shares as well as the
confidence of present and new shareholders who purchased shares of this
attractive equity income fund.

* 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, Class C Shares, and Class F Shares, were 23.20%, 23.69%, 28.40%,
and 27.72%, respectively.

The fund's diversified portfolio of more than 60 stocks and many convertible
securities represents 12 major industry sectors, and includes such well-known
names as Abbott Labs, AT&T, Citicorp, Bristol-Myers Squibb, DuPont, General
Electric, GTE, Sears, and Westinghouse.

We trust you were pleased with the positive performance of your
investment in Federated Equity Income Fund, Inc. Remember,
reinvesting your earnings can be a convenient way to build the value of your
account-and help your shares increase through the benefit of monthly
compounding.

Sincerely,

Richard B. Fisher
President
May 15, 1996

Investment Review

Christopher H. Wiles, CFA
Vice President,
Federated Advisers

CAN YOU COMMENT ON THE STOCK MARKET'S RECORD-SETTING UPSWING DURING 1995 AND
EARLY 1996?

The stock market continues to confound most market watchers with its
unprecedented strength. After the Standard and Poor's 500 Index* ("S&P 500")
advanced an impressive 37.58% in 1995, most analysts expected the S&P 500 to
take a breather in the first quarter of 1996. But, instead of selling off,
the S&P 500 advanced 5.37% in the first three months of 1996. This most
recent advance seems to be driven by the record-setting inflows of cash into
equity mutual funds.

HOW DID FEDERATED EQUITY INCOME FUND, INC. PERFORM FOR ITS SHAREHOLDERS OVER
THE 12-MONTH PERIOD ENDING MARCH 31, 1996?

The fund was able to keep pace with this strong market advance. Federated
Equity Income Fund, Inc., Class A Shares were up 30.37%** based on net asset
value - compared to the Lipper average equity income fund gain of 26.41% -
while the S&P 500 advanced 32.10%. The total returns, based on net asset
value, for Class B Shares, Class C Shares and Class F Shares were 29.40%,
29.39% and 30.06%, respectively.** The fund was ranked 11th out of 135 equity
income funds over the 12-month period ended March 31, 1996, as tracked by
Lipper Analytical Services, Inc.***

CAN YOU LIST A FEW OF THE FUND'S TOP HOLDINGS, ALONG WITH A BRIEF COMMENTARY
ON EACH?

The largest holding in the fund continues to be PHILIP MORRIS, with a
weighting of 2.80%. While the controversy and litigation risk have increased,
nothing has changed concerning the company's fundamentals: it still yields
approximately 4.50% and is growing at a rate of 15% per year.

Another top holding is the SOLECTRON convertibles at 2.28% of fund assets.
Solectron is a leader in providing advanced manufacturing services to the
technology market. The convertible securities allow us to participate in this
growth industry while limiting our downside risk.

* The S&P 500 is a composite index of common stocks in industry,
transportation, and financial and public utility companies that can be
used to compare to the total returns of funds whose portfolios are
invested primarily in common stocks. This index is unmanaged, and actual
investments may not be made in an index.

** Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total returns for the period, for Class AShares,
Class B Shares, Class C Shares and Class F Shares based on offering
price, were 23.20%, 23.69%, 28.40%, and 27.72%, respectively.

*** Lipper Analytical Services, Inc., ranks funds in various fund categories
based on total return and does not include the effect of sales charges.
The fund was ranked 5 out of 55 equity income funds over the 5-year
period ended March 31, 1996.

Another attractive holding is our 2.00% position in SUNAMERICA PERCS.
SunAmerica is a leading financial services company specializing in the
rapidly growing annuity market. The PERCS generate a 4.56% yield while
allowing us to participate in most of the equity's growth potential.

WHAT ROLE DO CONVERTIBLE SECURITIES CONTINUE TO PLAY IN THE FUND'S PORTFOLIO?

Convertibles account for nearly 30% of the fund's assets. As always,
convertibles allow us to achieve broader diversification in sectors - such as
technology - where the common stocks offer little in the way of yield. They
also allow us to participate in most of the upside potential of the common
stock while protecting us somewhat on the downside due to their higher
yields.

IN THE FUND'S PREVIOUS REPORT, YOU NOTED FEDERATED EQUITY INCOME FUND, INC.'S
RISK-AVERSE CHARACTERISTICS. FOR EXAMPLE, YOU AVOID MARKET TIMING AND BETTING
ON SPECIFIC SECTORS, WHILE FOCUSING ON SECURITY SELECTION TO ENHANCE RETURNS.
CAN YOU REVIEW YOUR SECURITY SELECTION PROCESS?

The core of our approach is to lower market risk and sector risk, and
emphasize security selection. Security selection focuses first on a company's
current yield - we want each security to yield more than the average yield of
other companies in its respective sector. While the overall portfolio has
historically yielded approximately 50% more than the S&P 500, high yield
alone is not sufficient. A company must prove that the dividend is
sustainable at least and able to grow rapidly at best. This involves a
thorough analysis of a company's return on equity and cash flows. We also
focus on the qualitative aspect of management integrity.

WHILE MARKET TIMING IS NOT A FUND STRATEGY, AS WE END THE FIRST QUARTER OF
1996, DO YOU SEE INCREASING POTENTIAL FOR A MARKET PULLBACK AS THE YEAR
PROGRESSES?

We continue to believe that we are in the mature stages of a bull market, and
that a correction of some magnitude should be expected. Of course, trying to
time such corrections would be foolhardy. Instead, we are keeping a watchful
eye on the downside risk in each and every security in the fund's portfolio.
We believe that, at this stage of the market, it is more important to know
your downside risk than your upside potential.

TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

INITIAL INVESTMENT:

IF YOU HAD MADE AN INITIAL INVESTMENT OF $10,000 IN THE CLASS A SHARES OF
FEDERATED EQUITY INCOME FUND, INC. ON 12/30/86, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$28,232 ON 3/31/96. YOU WOULD HAVE EARNED AN 11.87%* AVERAGE ANNUAL TOTAL
RETURN FOR THE INVESTMENT LIFE SPAN OF THE FUND WHICH IS OVER NINE YEARS.

One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.

As of 3/31/96, the Class A Shares' average annual one-year, five-year, and
since inception (12/30/86) total returns were 23.20%, 15.16%, and 11.87%,
respectively. Class B Shares' average annual one-year and since inception
(9/27/94) total returns were 23.69% and 18.85% respectively. Class C Shares'
average annual one-year and since inception (5/3/93) total returns were
28.40% and 14.16%, respectively. Class F Shares' average annual one-year and
since inception (11/12/93) total returns were 27.72% and 12.29%,
respectively.

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 5.5%
sales charge applicable to an initial investment in Class A Shares.

Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost.

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

ONE STEP AT A TIME:

$1,000 INVESTED EACH YEAR FOR OVER 9 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $19,573.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class A Shares of
Federated Equity Income Fund, Inc. on 12/30/86, reinvested your dividends and
capital gains, and did not redeem any shares, you would have invested only
$10,000, but your account would have reached a total value of $19,573* by
3/31/96. You would have earned an average annual total return of 13.59%.

A practical investment plan helps you pursue growth and income through common
stocks and convertible securities. Through systematic investing, you buy
shares on a regular basis and reinvest all earnings. This investment plan
works for you when you invest only $1,000 annually. You can take it one step
at a time. Put time and compounding to work!

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, regard- less of
changing price levels, the investor should consider whether or not to
continue purchases through periods of low price levels.

FEDERATED EQUITY INCOME FUND, INC.-
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR GROWTH

Eliot and Helen Barnes are a fictitious couple who share with many other
investors the goal of growth from good dividend-paying stocks.

Eliot is an engineer working for a major corporation. Helen is a school
teacher. On December 30, 1986, the Barnes invested $10,000 from maturing CD's
in Federated Equity Income Fund, Inc.

As this chart shows, over 9 years, their original $10,000 investment in the
Class A Shares has grown to $28,232. This represents an 11.87% average annual
total return.* For the Barnes, that means dependable performance from good
dividend-paying stocks in 12 industry sectors that helps their money grow.

See Appendix C

* This hypothetical scenario is provided for illustrative purposes only
and does not represent the result obtained by any particular shareholder.

Past performance does not guarantee future results.

FEDERATED EQUITY INCOME FUND, INC.-
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
SERVING A WIDE RANGE OF INVESTORS
FEDERATED EQUITY INCOME FUND, INC. APPEALS TO A BROAD RANGE OF INVESTORS
SEEKING INCOME AND GROWTH.

The fund invests primarily in a diversified portfolio of common stocks and
convertible securities issued by major corporations-both U.S. and
international. Fund shares are not guaranteed, and the value of your
investment may fluctuate. Mutual funds involve risk, including possible loss
of principal.

See Appendix D

FEDERATED EQUITY INCOME FUND, INC.-
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
PORTFOLIO UPDATE

See Appendix E

FEDERATED EQUITY INCOME FUND, INC. - CLASS A SHARES
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC. - CLASS A SHARES)

GROWTH OF $10,000 INVESTED IN FEDERATED EQUITY INCOME FUND, INC.
(CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Equity Income Fund, Inc. (Class A Shares) from December 30, 1986
(start of performance) to March 31, 1996, compared to the Standard and Poor's
500 Index (S&P 500)+ and the Lipper Equity Income Fund Index (LEIFI).+

See Appendix F

* Represents a hypothetical investment of $10,000 in the fund after
deducting the maximum sales charge of 4.50% ($10,000 investment minus $450
sales charge = $9,550) that was in effect prior to October 1, 1994. As of
October 1, 1994, the maximum sales charge was 5.50%. The fund's
performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.

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

+ The S&P 500 and the LEIFI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
fund's performance. The indices are unmanaged.

FEDERATED EQUITY INCOME FUND, INC. - CLASS B SHARES
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC. - CLASS B SHARES)

GROWTH OF $10,000 INVESTED IN FEDERATED EQUITY INCOME FUND, INC.
(CLASS B SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Equity Income Fund, Inc. (Class B Shares) from September 27, 1994
(start of performance) to March 31, 1996 compared to the Standard & Poor's
500 Index (S&P 500)+ and the Lipper Equity Income Fund Index (LEIFI)+.

See Appendix G

* Represents a hypothetical investment of $10,000 in the fund. The ending
value of the fund reflects a 5.50% contingent deferred sales charge on any
redemption less than one year from the purchase date. The fund's
performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.

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

+ The S&P 500 and the LEIFI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
fund's performance. The indices are unmanaged.

FEDERATED EQUITY INCOME FUND, INC. - CLASS C SHARES
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC. - CLASS C SHARES)

GROWTH OF $10,000 INVESTED IN FEDERATED EQUITY INCOME FUND, INC.
(CLASS C SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Equity Income Fund, Inc. (Class C Shares) from May 3, 1993
(start of performance) to March 31, 1996 compared to the Standard & Poor's
500 Index (S&P 500)+ and the Lipper Equity Income Fund Index (LEIFI)+.

See Appendix H

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

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

+ The S&P 500 and the LEIFI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
fund's performance. The indices are unmanaged.

FEDERATED EQUITY INCOME FUND, INC. - CLASS F SHARES
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC. - FORTRESS SHARES)

GROWTH OF $10,000 INVESTED IN FEDERATED EQUITY INCOME FUND, INC.
(CLASS F SHARES)

The graph below illustrates the hypothetical investment of $10,000 in the
Federated Equity Income Fund, Inc. (Class F Shares) from November 12, 1993
(start of performance) to March 31, 1996 compared to the Standard & Poor's
500 Index (S&P 500)+ and the Lipper Equity Income Fund Index (LEIFI)+.

See Appendix I

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900). The fund's performance assumes the
reinvestment of all dividends and distributions. The S&P 500 and the
LEIFI have been adjusted to reflect reinvestment of dividends on
securities in the indices.

** The ending value of the fund reflects a contingent deferred sales charge
of 1.00% on any redemption less than four years from the purchase date.

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

+ The S&P 500 and the LEIFI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
fund's performance. The indices are unmanaged.

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-68.0%
BASIC INDUSTRY-3.8%
275,000 Allegheny Ludlum Corp. $ 5,087,500
60,000 Du Pont (E.I.) de Nemours & Co. 4,980,000
70,000 Eastman Chemical Co. 4,838,750
Total 14,906,250
CONSUMER DURABLES-1.8%
200,000 Ford Motor Co. 6,875,000
CONSUMER NON-DURABLES-11.2%
75,000 Avon Products, Inc. 6,431,250
135,000 Campbell Soup Co. 8,218,125
270,000 Heinz (H.J.) Co. 8,943,750
125,000 Philip Morris Cos., Inc. 10,968,750
200,000 Tambrands, Inc. 9,350,000
Total 43,911,875
ENERGY MINERALS-6.2%
80,000 Exxon Corp. 6,530,000
50,000 Mobil Corp. 5,793,750
80,000 Shell Transport & Trading Co., ADR 6,420,000
270,000 YPF Sociedad Anonima, ADR 5,433,750
Total 24,177,500
FINANCE-6.6%
105,000 First Union Corp. 6,352,500
140,000 Fleet Financial Group, Inc. 5,670,000
190,000 Meditrust, REIT 6,436,250
130,000 Mellon Bank Corp. 7,166,250
Total 25,625,000
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
HEALTH CARE-8.4%
180,000 Abbott Laboratories $ 7,335,000
80,000 American Home Products Corp. 8,670,000
110,000 Bristol-Myers Squibb Co. 9,418,750
120,000 Merck & Co., Inc. 7,470,000
Total 32,893,750
PRODUCER MANUFACTURING-3.6%
200,000 Dresser Industries, Inc. 6,100,000
105,000 General Electric Co. 8,176,875
Total 14,276,875
RETAIL TRADE-3.3%
140,000 Penney (J.C.) Co., Inc. 6,965,000
120,000 Sears, Roebuck & Co. 5,850,000
Total 12,815,000
SERVICES-4.4%
625 (a)Advanstar Corp. 0
194 (a)Advanstar Corp., Warrants 0
80,000 Browning-Ferris Industries, Inc. 2,520,000
60,000 Gannett Co., Inc. 4,035,000
65,000 McGraw-Hill Cos., Inc. 5,638,750
65,000 Schlumberger Ltd. 5,143,125
Total 17,336,875
TECHNOLOGY-5.7%
140,000 General Dynamics Corp. 8,190,000
126,702 General Motors Corp., Class E 7,222,014
60,000 United Technologies Corp. 6,735,000
Total 22,147,014
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-CONTINUED
TRANSPORTATION-1.2%
65,000 Consolidated Rail Corp. $ 4,655,625
UTILITIES-11.8%
100,000 AT&T Corp. 6,125,000
150,000 BellSouth Corp. 5,550,000
175,000 DPL, Inc. 4,178,125
120,000 Enron Corp. 4,425,000
100,000 GTE Corp. 4,387,500
120,000 NIPSCO Industries, Inc. 4,470,000
250,000 National Power Co. PLC, ADR 5,125,000
90,000 SBC Communications, Inc. 4,736,250
155,000 Southern Co. 3,700,625
125,000 Utilicorp United, Inc. 3,578,125
Total 46,275,625
TOTAL COMMON STOCKS (IDENTIFIED COST $233,122,757) 265,896,389
CONVERTIBLE PREFERRED STOCKS-14.8%
BASIC INDUSTRY-3.0%
300,000 Arcadian Corp., Conv. Pfd., 9.50% 6,037,500
275,000 Coeur d'Alene Mines Corp., Conv. Pfd., 7.00% 5,809,375
Total 11,846,875
CONSUMER DURABLES-0.4%
90,400 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 1,423,800
ENERGY MINERALS-1.7%
130,000 Valero Energy Corp., Conv. Pfd., $3.13 6,743,750
FINANCE-5.3%
80,000 Jefferson-Pilot Corp. Conv. Pfd., 7.25% 6,720,000
125,000 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 6,656,250
110,000 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 7,452,500
Total 20,828,750
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS-CONTINUED
PRODUCER MANUFACTURING-1.8%
55,000 Case Corp., Cumulative Conv. Pfd., Series A, $4.50 $ 6,857,675
SERVICES-2.4%
115,000 Browning-Ferris Industries, Inc., ACES, $2.58 3,852,500
150,000 Time Warner Financing, PERCS, Series HAS, $1.24 5,587,500
Total 9,440,000
TRANSPORTATION-0.2%
10,000 (d)Trans World Airlines, Inc., Conv. Pfd., 8.00% 565,000
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $54,457,915) 57,705,850
CONVERTIBLE BONDS-13.1 %
FINANCE-1.2%
$ 4,000,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 4,543,040
HEALTH CARE-2.0%
7,000,000 (d)Sandoz Capital BVI Ltd., Conv. Bond, 2.00%, 10/6/2002 7,805,000
PRODUCER MANUFACTURING-1.9%
7,000,000 Magna International, Inc. , Conv. Bond, 5.00%, 10/15/2002 7,302,260
RETAIL TRADE-1.4%
5,000,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 5,591,650
SERVICES-1.0%
4,000,000 HFS, Inc., Conv. Bond, 4.75%, 3/1/2003 4,116,920
TECHNOLOGY-5.6%
5,000,000 (d)3 Com Corp., Conv. Bond, 10.25%, 11/1/2001 7,050,000
5,400,000 (d)Altera Corp., Conv. Bond, 5.75%, 6/15/2002 6,917,022
8,000,000 (d)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 7,880,000
Total 21,847,022
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $47,867,142) 51,205,892
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(B)REPURCHASE AGREEMENT-4.5%
$ 17,580,000 BT Securities Corporation, 5.43%, dated 3/29/1996, due 4/1/1996 $ 17,580,000
TOTAL INVESTMENTS (IDENTIFIED COST $353,027,814)(C) $ 392,388,131
</TABLE>

(a) Non-income producing security.
(b) 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.
(c) The cost of investments for federal tax purposes amounts to $353,175,993.
The net unrealized appreciation of investments on a federal tax basis
amounts to $39,212,138 which is comprised of $41,788,868 appreciation and
$2,576,730 depreciation at March 31, 1996.
(d) Denotes restricted security which is subject to restrictions or resale
under Federal Securities laws. At the end of the period, these securities
amounted to $30,217,022 which represents 7.7% of net assets.
Note: The categories of investments are shown as a percentage of net assets
($391,154,937) at March 31, 1996.

The following acronym(s) are used throughout this portfolio:

ACES - Adjustable Convertible Extendable Securities
ADR - American Depositary Receipt
PERCS - Preferred Equity Redemption Cumulative Stock
PLC - Public Limited Company
REIT - Real Estate Investment Trust
STRYPES - Structured Yield Product Exchangeable for Stock

(See Notes which are an integral part of the Financial Statements)

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $353,027,814
and tax cost $353,175,993) $ 392,388,131
Cash 18,617
Income receivable 1,549,541
Receivable for investments sold 5,588,224
Receivable for shares sold 4,975,783
Total assets 404,520,296
LIABILITIES:
Payable for investments purchased $ 12,579,115
Payable for shares redeemed 291,370
Income distribution payable 210,740
Accrued expenses 284,134
Total liabilities 13,365,359
Net Assets for 27,437,199 shares outstanding $ 391,154,937
NET ASSETS CONSIST OF:
Paid in capital $ 335,893,125
Net unrealized appreciation of investments 39,360,317
Accumulated net realized gain on investments 16,113,883
Distribution in excess of net investment income (212,388)
Total Net Assets $ 391,154,937
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($220,267,684 / 15,450,868 shares outstanding) $14.26
Offering Price Per Share (100/94.50 of $14.26)* $15.09
Redemption Proceeds Per Share $14.26
CLASS B SHARES:
Net Asset Value Per Share ($71,019,001 / 4,981,062 shares outstanding) $14.26
Offering Price Per Share $14.26
Redemption Proceeds Per Share (94.50/100 of $14.26)** $13.48
CLASS C SHARES:
Net Asset Value Per Share ($48,160,834 / 3,378,290 shares outstanding) $14.26
Offering Price Per Share $14.26
Redemption Proceeds Per Share (99/100 of $14.26)** $14.12
CLASS F SHARES:
Net Asset Value Per Share ($51,707,418 / 3,626,979 shares outstanding) $14.26
Offering Price Per Share (100/99 of $14.26)* $14.40
Redemption Proceeds Per Share (99/100 of $14.26)** $14.12
</TABLE>

* See "How to Purchase Shares" or "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.

(See Notes which are an integral part of the Financial Statements)

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 8,939,507
Interest 2,120,267
Total income 11,059,774
EXPENSES:
Investment advisory fee $ 1,573,643
Administrative personnel and services fees 214,999
Custodian fees 34,958
Transfer agent and dividend disbursing agent fees and expenses 346,121
Directors'/Trustees' fees 6,597
Auditing fees 17,958
Legal fees 1,296
Portfolio accounting fees 97,920
Distribution services fee-Class B Shares 195,799
Distribution services fee-Class C Shares 280,409
Distribution services fee-Class F Shares 106,589
Shareholder services fee-Class A Shares 390,360
Shareholder services fee-Class B Shares 65,266
Shareholder services fee-Class C Shares 93,469
Shareholder services fee-Class F Shares 106,589
Share registration costs 146,335
Printing and postage 86,076
Insurance premiums 7,763
Taxes 25,119
Miscellaneous 5,343
Total expenses 3,802,609
Waivers-
Waiver of investment advisory fee $ (418,318)
Waiver of shareholder services fee-Class A Shares (62,458)
Waiver of shareholder services fee-Class C Shares (5,957)
Waiver of shareholder services fee-Class F Shares (8,527)
Total waivers (495,260)
Net expenses 3,307,349
Net investment income 7,752,425
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 28,594,767
Net change in unrealized appreciation of investments 29,709,991
Net realized and unrealized gain on investments 58,304,758
Change in net assets resulting from operations $ 66,057,183
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 7,752,425 $ 6,125,158
Net realized gain (loss) on investments ($25,405,444 net gain and
$1,981,170 net loss, respectively, as computed for federal tax purposes) 28,594,767 (5,318,671)
Net change in unrealized appreciation (depreciation) of investments 29,709,991 11,980,000
Change in net assets resulting from operations 66,057,183 12,786,487
NET EQUALIZATION CREDITS (DEBITS) - 542,386 129,755
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares (5,006,103) (4,061,012)
Class B Shares (660,772) (48,850)
Class C Shares (903,387) (977,144)
Class F Shares (1,247,685) (1,195,855)
Distributions from net realized gains on investments
Class A Shares (3,301,588) -
Class B Shares (624,304) -
Class C Shares (748,630) -
Class F Shares (845,316) -
Change in net assets resulting from distributions to shareholders (13,337,785) (6,282,861)
SHARE TRANSACTIONS(EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME) -
Proceeds from sale of shares 191,379,119 77,783,595
Net asset value of shares issued to shareholders in payment of
distributions declared 9,252,011 3,807,006
Cost of shares redeemed (42,568,011) (38,700,929)
Change in net assets resulting from share transactions 158,063,119 42,889,672
Change in net assets 211,324,903 49,523,053
NET ASSETS:
Beginning of period 179,830,034 130,306,981
End of period (including undistributed net investment income
of $0 and $455,579, respectively) $ 391,154,937 $ 179,830,034
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS-CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988(B) 1987(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.50 $11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22 $10.18 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.46 0.49 0.43 0.55 0.69 0.84 0.91 0.89 0.72 0.23
Net realized and
unrealized gain
(loss) on investments 2.96 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81) 0.18
Total from investment
operations 3.42 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48 (0.09) 0.41
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.41) (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86) (0.72) (0.23)
Distributions in
excess of net
investment income(c) - - - - - - (0.41) - - -
Distributions from
net realized
gain on investments (0.25) - - - - - (0.52) - (0.15) -
Total distributions (0.66) (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87) (0.23)
NET ASSET VALUE,
END OF PERIOD $14.26 $11.50 11.06 $10.91 $ 9.67 $ 8.59 $ 8.77 $10.84 $ 9.22 $10.18
TOTAL RETURN(D) 30.37% 8.31% 5.29% 18.98% 21.19% 8.95% (3.19%) 28.25% (0.54%) 3.63%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.03% 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%* 1.22%*
Net investment
income 3.19% 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%* 6.93%*
Expense waiver/
reimbursement(e) 0.20% 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25% 0.86%* 0.28%*
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $220,268 $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895 $10,866
Portfolio turnover 96% 91% 43% 79% 115% 31% 54% 49% 41% 24%
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from December 30, 1986 (date of
initial public investment) to April 30, 1987.
(b) For the period from May 1, 1987 to March 31, 1988. (Effective November 1,
1987, the Fund changed it's fiscal year-end from April 30 to March 31.)
(c) Distributions in excess of net investment income were a result of certain
books and tax timing differences. These distributions did not represent a
return of capital for federal income tax purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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 EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS-CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.50 $11.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32(d) 0.19
Net realized and unrealized gain (loss) on investments 3.01 0.26
Total from investment operations 3.33 0.45
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.19)
Distributions from net realized gain on investments (0.25) -
Total distributions (0.57) (0.19)
NET ASSET VALUE, END OF PERIOD $14.26 $11.50
TOTAL RETURN(B) 29.40% 4.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.83% 1.80%*
Net investment income 2.31% 3.42%*
Expense waiver/reimbursement(c) 0.16% 0.47%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $71,019 $6,072
Portfolio turnover 96% 91%
</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) Based on net asset value, which does not reflect sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Calculated using average outstanding shares.

(See Notes which are an integral part of the Financial Statements)

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS-CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>

YEAR ENDED MARCH 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.50 $11.06 $10.76
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.37 0.34
Net realized and unrealized gain (loss) 3.00 0.44 0.28
Total from investment operations 3.32 0.81 0.62
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.37) (0.32)
Distributions from net realized gain on investments (0.25) - -
Total distributions (0.56) (0.37) (0.32)
NET ASSET VALUE, END OF PERIOD $14.26 $11.50 $11.06
TOTAL RETURN(B) 29.39% 7.52% 5.66%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.76% 1.79%*
Net investment income 2.43% 3.25% 2.99%*
Expense waiver/reimbursement(c) 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $48,161 $30,189 $24,632
Portfolio turnover 96% 91% 43%
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1993 (date of initial
public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect sales charge or
contingent deferred sales charge, if applicable.
(c) 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 EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.51 $11.06 $11.74
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.39 0.42 0.17
Net realized and unrealized gain (loss) on investments 2.99 0.46 (0.68)
Total from investment operations 3.38 0.88 (0.51)
LESS DISTRIBUTIONS
Distributions from net investment income (0.38) (0.43) (0.17)
Distributions from net realized gain on investments (0.25) - -
Total distributions (0.63) (0.43) (0.17)
NET ASSET VALUE, END OF PERIOD $14.26 $11.51 $11.06
TOTAL RETURN(B) 30.06% 8.05% (4.43%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.30% 1.24% 1.29%*
Net investment income 2.95% 3.79% 3.71%*
Expense waiver/reimbursement(c) 0.18% 0.36% 0.89%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $51,707 $34,886 $21,010
Portfolio turnover 96% 91% 43%
</TABLE>

* Computed on an annualized basis.
(a) Reflects operations for the period from November 12, 1993 (date of
initial public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect sales charge or
contingent deferred sales charge, if applicable.
(c) 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 EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996

(1) ORGANIZATION

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

Effective March 31, 1996, the shareholders approved a change in the name of
the Fund from Liberty Equity Income Fund, Inc. to Federated Equity Income
Fund, Inc. The shareholders also approved a change in the name of Fortress
Shares to Class F Shares.

(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 equity securities, and other fixed income
securities are valued at the last sale price reported on a national
securities exchange. Listed corporate bonds, unlisted securities, and
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 Board of
Directors (the "Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.

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

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for accumulated equalization and have been
reclassified as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
PAID-IN DISTRIBUTIONS IN EXCESS OF NET
CAPITAL INVESTMENT INCOME
<C> <C>
$1,144,831 $1,144,831
</TABLE>

Net investment income, net realized gains/losses, and net assets were
not affected by this reclassification.

FEDERAL TAXES-It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.

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 Board of
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 EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

Additional information on each restricted security held at March
31, 1996 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
3 Com Corp. 5/19/1995-3/12/1996 $ 6,730,740
Altera Corp. 3/27/1996-3/29/1996 6,803,722
Sandoz Capital BVI Ltd. 9/28/1995-2/20/1996 5,946,625
Solectron Corp. 2/15/1996-3/12/1996 8,020,735
Trans World Airlines, Inc. 3/18/1996 500,000
</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.

OTHER - Investment transactions are accounted for on the trade
date.

(3) CAPITAL STOCK

At March 31, 1996, par value shares ($ 0.01 per share) authorized
were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL STOCK
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000
Total 2,000,000,000
</TABLE>

Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,673,265 $ 101,202,866 3,771,742 $ 41,785,909
Shares issued to shareholders in
payment of distributions declared 417,516 5,532,039 236,025 2,605,506
Shares redeemed (2,086,538) (27,277,129) (2,214,569) (24,461,004)
Net change resulting from Class A share
transactions 6,004,243 $ 79,457,776 1,793,198 $ 19,930,411
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,577,763 $ 62,087,710 542,872 $ 5,979,836
Shares issued to shareholders in
payment of distributions declared 82,607 1,119,010 3,850 42,461
Shares redeemed (207,101) (2,790,499) (18,929) (208,660)
Net change resulting from Class B share
transactions 4,453,269 $ 60,416,221 527,793 $ 5,813,637
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,204,046 $ 15,997,658 1,047,591 $ 11,663,392
Shares issued to shareholders in
payment of distributions declared 78,365 1,044,627 38,565 426,333
Shares redeemed (528,182) (6,800,666) (689,528) (7,619,912)
Net change resulting from Class C share
transactions 754,229 $ 10,241,619 396,628 $ 4,469,813
<CAPTION>

YEAR ENDED MARCH 31,
1996 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 917,406 $ 12,090,885 1,647,385 $ 18,354,458
Shares issued to shareholders in
payment of distributions declared 117,150 1,556,335 66,290 732,706
Shares redeemed (439,804) (5,699,717) (581,721) (6,411,353)
Net change resulting from Class F share
transactions 594,752 $ 7,947,503 1,131,954 $ 12,675,811
Net change resulting from Fund share
transactions 11,806,493 $ 158,063,119 3,849,573 $ 42,889,672
</TABLE>

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE-Federated Advisers, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to 0.60% of the Fund's average daily net
assets.

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

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 A
Shares, Class B Shares, Class C Shares, and Class F Shares. The Plan
provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS ASSETS OF CLASS
<S> <C>
Class A Shares 0.50%
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.25%
</TABLE>

For the year ended March 31, 1996, Class A Shares did not incur a
distribution services fee.

SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of daily average net assets of the Fund shares 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 AGENT AND DIVIDEND DISBURSING AGENT FEES-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.

FEDERATED EQUITY INCOME FUND, INC.
(FORMERLY, LIBERTY EQUITY INCOME FUND, INC.)

PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.

GENERAL-Certain of the Officers and Directors of the 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 March 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 389,894,534
SALES $ 242,528,527
</TABLE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Directors and Shareholders of
FEDERATED EQUITY INCOME FUND, INC.
(formerly, Liberty Equity Income Fund, Inc.):

We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Equity Income Fund,
Inc., as of March 31, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended and financial highlights for the periods
presented therein. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of March 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Equity Income Fund, Inc. at March 31, 1996, and the results of its
operations for the year then ended, changes in its net assets for each of the
two years in the period then ended, and the financial highlights for each of
the periods presented therein, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
May 10, 1996
<TABLE>
<S> <S>
DIRECTORS OFFICERS
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
J. Christopher Donahue J. Christopher Donahue
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>

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
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 313915100
Cusip 313915209
Cusip 313915308
Cusip 313915407
8042506 (5/96)
Recycled
Paper

APPENDIX
A. The graphic representation here displayed entitled "Initial Investment of
$10,000," consists of a boxed legend in the upper left quadrant indicating
the components of the corresponding mountain chart. The darker shaded
portion represents Reinvested Income and the lighter shaded portion
represents the Principal Value of $10,000 Investment (938 Shares). The
color-coded mountain chart is a visual representation of the narrative text
above it, which shows that an initial investment of $10,000 in the Class A
Shares of Federated Equity Income Fund, Inc. on 12/30/86, would have a
reinvested total worth of $28,323/1,975 Shares on 3/31/96. The "x" axis
reflects annual computation periods from 12/30/86 to 3/31/96. The right
margin of the chart reflects the ending values of a hypothetical investment
of $10,000 in the Fund measured in increments of $5,000 ranging from $0 to
$30,000.
B. The graphic representation here displayed entitled "Yearly Investments of
$1,000," consists of a boxed legend in the upper left quadrant indicating
the components of the corresponding mountain chart. The darker shaded
portion represents Reinvested Income and the lighter shaded portion
represents the Principal Value of all your $1,000 Investments (totaling
$10,000 by 3/31/96). The color-coded mountain chart is a visual
representation of the narrative text above it, which shows that if you had
started investing $1,000 annually in the Class A Shares of Federated Equity
Income Fund, Inc. on 12/30/86 you would have a reinvested total worth of
$19,573/1,369 Shares on 3/31/96. The "x" axis reflects annual computation
periods from 12/30/86 through 3/31/96. The right margin reflects the ending
values of a hypothetical annual investment of $1,000 in the Fund measured in
increments of $5,000 ranging from $0 to $20,000.
C. The graphic representation here displayed, entitled "Growth Over Time,"
consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The darker shaded portion
represents the value of Reinvested Income the lighter shaded portion
represents the Principal Value of $10,000 Investment (938 Shares). The
color-coded mountain chart is a visual representation of the narrative text
above it which shows that an original $10,000 investment in the Class A
Shares of Federated Equity Income Fund, Inc. on 12/30/86, would have a
reinvested total worth of $28,232/1,975 Shares on 3/31/96. The "x" axis
reflects annual computation periods from 12/30/86 to 3/31/96. The right
margin reflects the ending values of a hypothetical investment of $10,000 in
the Fund measured in $5,000 increments ranging from $0 to $30,000.
D. The graphic representation here displayed consists of a boxed-chart
entitled "Some of the Fund's Major Shareholder Groups." The list includes
the following investment groups and their dollar amounts invested in
Federated Equity Income Fund, Inc.:
Individual and Joint Tenants $49,561,837
IRAs $47,413,344
Trusts $10,412,269
Custodians $3,423,115
(under Uniform Gift to Minor Act)
Corporations $2,987,817
E. The graphic representation here displayed consists of a boxed-chart
entitled "Top Ten Holdings (as of 3/31/96)." The list includes the following
companies and the percentage of net assets that Federated Equity Income
Fund, Inc. has invested in these companies:
Phillip Morris Cos., Inc. 2.80%
Bristol-Myers Squibb Co. 2.41%
Tambrands, Inc. 2.39%
Heinz (H.J.) Co.% 2.29%
American Home Products Corp. 2.22%
Campbell Soup Co. 2.10%
General Dynamics Corp. 2.09%
General Electric Co. 2.09%
Solectron Corp. Conv. Bond 2.01%
Sandoz Capital BUI Ltd. Conv. Bond 2.00%
F. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Equity Income Fund, Inc. (Class A Shares) (the "Fund") is
represented by a solid black line. Standard & Poor's 500 Index (S&P 500) is
represented by a dotted line. Lipper Equity Income Fund Index (LEIFI) is
represented by a series of dashes separated by dots. The line graph is a
visual representation of a comparison of a change in value of a hypothetical
$10,000 investment in the Fund, S&P 500 and LEIFI. The "x" axis reflects
annual computation periods from 12/30/86 to 3/31/96. The "y" axis reflects
the cost of investment in $5,000 increments ranging from $5,000 to $40,000.
The right margin reflects the ending values of the hypothetical investment
in the Fund as compared to the S&P 500 and LEIFI; the ending values are
$28,546, $36,847 and $29,305, respectively. Below the legend are the Average
Annual Total Returns for the 1 Year, 5 Year, and Start of Performance
(12/30/86) periods ended March 31, 1996; the total returns listed are
23.20%, 15.16%, 11.87%, respectively.
G. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph
Federated Equity Income Fund, Inc. (Class B Shares) (the "Fund") is
represented by a solid black line. Standard & Poor's 500 Index (S&P 500) is
represented by a dotted line. Lipper Equity Income Fund Index (LEIFI) is
represented by a series of dashes separated by dots. The line graph is a
visual representation of a comparison of a change in value of a hypothetical
$10,000 investment in the Fund, S&P 500 and LEIFI. The "x" axis reflects
annual computation periods from 9/27/94 to 3/31/96. The "y" axis reflects
the cost of investment in $2,000 increments ranging from $10,000 to $16,000.
The right margin reflects the ending values of the hypothetical investment
in the Fund as compared to the S&P 500 and LEIFI; the ending values are
$12,966, $15,265, and $13,894, respectively. Below the legend is the Average
Annual Total Returns for the 1 Year and Start of Performance (9/27/94)
periods ended March 31, 1996; the total returns listed are 23.69%, and
18.85%, respectively.
H. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Equity Income Fund, Inc.(Class C Shares) (the "Fund") is
represented by a solid black line. Standard & Poor's 500 Index (S&P 500) is
represented by series of dashes separated by dots. Lipper Equity Income
Fund Index (LEIFI) is represented by a series a dots. The line graph is a
visual representation of a comparison of a change in value of a hypothetical
$10,000 investment in the Fund, S&P 500 and LEIFI. The "x" axis reflects
annual computation periods from 5/3/93 to 3/31/96. The "y" axis reflects the
cost of investment in $4,000 increments ranging from $8,000 to $16,000. The
right margin reflects the ending values of the hypothetical investment in
the Fund as compared to the S&P 500 and LEIFI; the ending values are
$14,417, $15,484, and $14,699, respectively. Below the legend are the
Average Annual Total Returns for the 1 Year and Start of Performance
(5/3/93) periods ended March 31, 1996; the total returns listed are 28.40%,
and 14.16%, respectively.
I. The graphic representation here displayed consists of a boxed legend in
the bottom center indicating the components of the corresponding line graph.
Federated Equity Income Fund, Inc.(Class F Shares) (the "Fund") is
represented by a solid black line. Standard & Poor's 500 Index (S&P 500) is
represented by series of dashes separated by dots. Lipper Equity Income
Fund Index (LEIFI) is represented by a series a dots. The line graph is a
visual representation of a comparison of a change in value of a hypothetical
$10,000 investment in the Fund, S&P 500 and LEIFI. The "x" axis reflects
annual computation periods from 11/12/93 to 3/31/96. The "y" axis reflects
the cost of investment in $3,000 increments ranging from $9,000 to $18,000.
The right margin reflects the ending values of the hypothetical investment
in the Fund as compared to the S&P 500 and LEIFI; the ending values are
$13,296, $15,484, and $14,417, respectively. Below the legend are the
Average Annual Total Returns for the 1 Year and Start of Performance
(11/12/93) periods ended March 31, 1996; the total returns listed are
27.72%, and 12.29%, respectively.