FEDERATED
LIBERTY
EQUITY INCOME
FUND, INC.
8TH SEMI-ANNUAL REPORT
SEPTEMBER 30, 1994
Established 1986
President's Message
Dear Fellow Shareholder:
I am pleased to present the 8th Semi-Annual Report for Liberty Equity Income
Fund, Inc. (the "Fund'').
This report covers the six-month period, April 1, 1994, to September 30,
1994. The report contains an interview with the Fund's co-portfolio managers
Christopher H. Wiles, Vice President, Federated Advisers, and Timothy E. Keefe,
Assistant Vice President, Federated Advisers. It follows with a complete
listing of the Fund's Portfolio of Investments, a series of investment
performance charts, and the Fund's Financial Statements.
The Fund's diversified portfolio of stocks and convertible securities included
more than 74 companies spanning virtually every major industrial sector.The
portfolio's issues include such familiar names as: Ford, Eastman Kodak, Philip
Morris, and Sears.
Investors continued to express their interest and confidence in the Fund's
investment concept of owning good, dividend-paying stocks and convertible
securities. Shareholders added more than $37 million to the Fund's net assets
during the report period. The Fund's net assets stood at $167.4 million as
of September 30, 1994.
I am pleased to report that the Fund's net asset value continued to increase
as well. On April 1, 1994, the net asset value per share of Class A Shares
stood at $11.06, compared to $11.29 on September 30, 1994; Class C Shares
$11.06, compared to $11.28; and Fortress Shares $11.06, compared to $11.28.
Dividends paid during the reporting period totaled $0.22, $0.18, and $0.21 per
share for Class A, Class C, and Fortress Shares, respectively. Total returns
based on net asset value for the six-month period ended September 30, 1994,
were 4.12%, 3.65%, and 3.91% for Class A, Class C, and Fortress Shares,
respectively.*
During 1994, when most financial markets experienced disappointing total
returns, we trust you are pleased with the positive performance of Liberty
Equity Income Fund. As always, we welcome your comments and
suggestions.
Very sincerely yours,
Richard B. Fisher
President
November 15, 1994
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than their original cost.
Christopher H. Wiles, CFA
Vice President,
Federated Advisers
Can you give us a quick recap of the performance of the equity markets in
the first nine months of the year? How has the Liberty Equity Income Fund done
in comparison?
The stock market has been in a trading range as the good news of higher
corporate earnings is being offset by the rise in interest rates and the concern
about inflation. From the beginning of the year until September 30, 1994, the
30-year Treasury bond has increased from a yield of 6.35% to its current yield
of 7.75%. The Standard and Poor's 500 Index* over that same time period is up
1.34%. While the Fund's Class A Share total return based on net asset value was
roughly flat at -0.13% during the first nine months of the year, its total
return based on net asset value stood at 4.12% for the six-month reporting
period.** While we would always like to have performance numbers that are better
than the index, share price fluctuations are to be expected over a short-term
horizon. The longer-term returns are much more favorable in comparison.
What is an equity income fund, and how does the Liberty Equity Income Fund
compare to that definition?
Equity income funds generally have at least 50% invested in common stocks
and have some bond component. The investment parameters of the group differ
substantially, but for the most part, the group has offered investors a more
conservative way of investing in the equity markets. The reason it tends to be
less risky than the overall equity market is that the primary objective is
current yield, and the secondary objective is long-term capital appreciation.
This "bird-in-the-hand" style of investing can reward investors with higher
current income than the rest of the market. The bond component of the Fund
helps dampen market volatility. In the Liberty Equity Income Fund, we invest
about 60% of assets in good dividend-paying common stocks, 30% in convertible
securities, 5% in high-yield corporate bonds, and a minimal amount in
cash. This diversification of security types helps us to provide investors
with lower volatility than the stock market. We are believers in broad
diversification.
* This index is unmanaged.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so an investor's shares, when redeemed, may
be worth more or less than their original cost. For the nine-month period
ended September 30, 1994, the total returns based on net asset value for
Class C Shares and Fortress Shares were -0.75% and -0.39%, respectively.
What securities have you added recently to the portfolio?
In the first half of the year, we were adding to our position in the energy
sector. The demand for oil has grown steadily over the past five years despite
a worldwide recession, and with the turn we expect in the world economies over
the next couple of years, we expect demand to accelerate.
In the industrial and manufacturing sector, we have added Deere & Co., which is
the premier manufacturer of construction and farm equipment. It is down
substantially from its high and will benefit from the increased spending around
the world in both construction and farm equipment. Deere & Co. will also benefit
from above average pricing power going forward, as its competition has either
exited the business or has embraced a more rational pricing structure.
In the technology sector, we added the convertible securities of LSI Logic Corp.
and Cypress Semiconductor. Semiconductor demand is growing at a 20% to 30%
rate, as chips are penetrating a greater portion of the economy. LSI Logic
produces highly specialized chips targeting high-growth, high margin markets
such as digitized video, computer networking, and personal communication
systems. Cypress Semiconductor produces highly specialized semi-conductor chips
for the personal computer market and will benefit from the trend toward
increased chip content per personal computer.
In the healthcare sector, we added Merck & Co. and Johnson & Johnson. While
there will be continued pressure on margins due to price competition, these two
companies have a strategy and new product pipeline which can overcome these
pressures and enable them to continue to grow their businesses.
Two Ways You May Seek to Invest for Success in
Liberty Equity Income Fund, Inc.
Initial Investment:
An $8,000 investment (reinvesting all dividends and capital gains) grew to
$16,844.
If you had invested $8,000 in the Class A Shares of Liberty Equity Income Fund,
Inc. on 12/30/86, reinvested dividends and capital gains, and didn't redeem any
shares, your account would have been worth $16,844 on 9/30/94. You would have
earned a 10.08% average annual total return for the 8-year investment life
span.*
One key to investing wisely is to reinvest all distributions in Fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/94, the Class A Shares' average annual one-year, five-year and
since inception on 12/30/86 total returns were -4.69%, 8.27%, and 9.91%,
respectively. Class C Shares' one-year and since inception (5/4/93) total
returns were -0.93% and 6.67%, respectively. Fortress Shares' cumulative total
return since inception (11/13/93) was -2.66%.**
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A
*The total return stated for Class A Shares for 9/30/94 does not reflect
the new 5.5% sales load. The sales load reflected is 4.5%.
**The total return stated takes into account the 5.5% sales load for Class
A Shares effective 10/1/94, the 1% contingent deferred sales charge for
Class C Shares and the 1% sales load and 1% contingent deferred sales charge
for Fortress 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. Total return
represents the change in the value of an investment after reinvesting all income
and capital gains.
Liberty Equity Income Fund, Inc.
One Step at a Time:
$1,000 invested each year for 8 years (reinvesting all dividends and capital
gains) grew to $12,850.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Liberty 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
$8,000, but your account would have reached a total value of $12,850 by
9/30/94. You would have earned an average annual total return of 11.04%.*
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 even if you invest only $1,000 annually. You can take it one step at a
time. Put time and compounding to work!
GRAPHIC REPRESENTATION 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.
Liberty Equity Income Fund, Inc. --
Hypothetical Investor Profile: Investing for Steady Growth
Eliot and Helen Barnes are a fictitious couple who share with many other
investors the goal of "slow and steady" growth from dividend-paying stocks.
Eliot is an engineer working for a major corporation. Helen teaches school.
On September 30, 1987, the Barnes invested $10,000 from maturing CDs in Liberty
Equity Income Fund, Inc.
As this chart shows, over 7 years, their original $10,000 investment in the
Class A Shares has grown to $20,313. This represents a 10.65%, minus any
applicable sales load and/or contin-gent deferred sales charge, annualized total
return.* For the Barnes, that means dependable performance from good
dividend-paying stocks.
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX C
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder.
Past performance does not guarantee future results.
Liberty Equity Income Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
September 30, 1994
(unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
- ------------ ---------------------------------------------------------------------------------- --------------
(A)COMMON STOCKS & CONVERTIBLE SECURITIES--91.3%
- ------------------------------------------------------------------------------------------------
BASIC INDUSTRY--7.7%
----------------------------------------------------------------------------------
70,000 (b) Freeport McMoran, Inc., Conv. Pfd., 9.00% accrual, 8/5/2006 $ 3,517,500
----------------------------------------------------------------------------------
50,000 Georgia-Pacific Corp. 3,825,000
----------------------------------------------------------------------------------
20,000 Phelps Dodge Corp. 1,242,500
----------------------------------------------------------------------------------
3,000,000 (b) Riverwood International Inc., Conv. Sub. Note, 6.75%, 9/15/2003 3,420,000
----------------------------------------------------------------------------------
500,000 Stone Container Corp., Conv. Sr. Sub. Note, 8.875%, 7/15/2000 945,000
---------------------------------------------------------------------------------- --------------
Total 12,950,000
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--5.6%
----------------------------------------------------------------------------------
40,000 Ford Motor Co. 1,110,000
----------------------------------------------------------------------------------
15,000 Ford Motor Co., Conv. Pfd., Series A, 8.40% 1,376,255
----------------------------------------------------------------------------------
70,000 General Motors Corp. 3,281,250
----------------------------------------------------------------------------------
150,000 Kaufman and Broad Homes Inc., Conv. Pfd., Series B, 8.75% 2,418,750
----------------------------------------------------------------------------------
100,000 South West Property Trust, Inc. 1,187,500
---------------------------------------------------------------------------------- --------------
Total 9,373,755
---------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--7.1%
----------------------------------------------------------------------------------
100,000 Campbell Soup Co. 3,950,000
----------------------------------------------------------------------------------
50,000 Eastman Kodak Co. 2,587,500
----------------------------------------------------------------------------------
50,000 Philip Morris Companies, Inc. 3,056,255
----------------------------------------------------------------------------------
325,000 RJR Nabisco Holdings Corp., Conv. Pfd., Series C 2,275,000
---------------------------------------------------------------------------------- --------------
Total 11,868,755
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--6.5%
----------------------------------------------------------------------------------
140,000 CBL & Associates Properties, Inc. (REIT) 2,712,500
----------------------------------------------------------------------------------
100,000 Horizon Outlet Centers (REIT) 2,462,500
----------------------------------------------------------------------------------
50,000 Sears, Roebuck & Co. 2,400,000
----------------------------------------------------------------------------------
40,000 Sears, Roebuck & Co., Conv. Pfd., Series A, 3.75% 2,240,000
----------------------------------------------------------------------------------
40,000 Smith, (Charles E.) Residential Realty, Inc. 1,025,000
---------------------------------------------------------------------------------- --------------
Total 10,840,000
---------------------------------------------------------------------------------- --------------
ENERGY--9.8%
----------------------------------------------------------------------------------
70,000 Chevron Corp. 2,913,750
----------------------------------------------------------------------------------
75,000 Noble Drilling Corp., Conv. Pfd. 3,093,750
----------------------------------------------------------------------------------
13,000 Royal Dutch Petroleum Co. 1,395,875
----------------------------------------------------------------------------------
125,000 Tosco Corp. 3,546,880
----------------------------------------------------------------------------------
90,000 Ultramar Corp. 2,295,000
----------------------------------------------------------------------------------
35,000 Valero Energy Corp., Conv. Pfd. 1,662,500
----------------------------------------------------------------------------------
59,400 YPF Sociedad Anonima, ADR 1,499,850
---------------------------------------------------------------------------------- --------------
Total 16,407,605
---------------------------------------------------------------------------------- --------------
FINANCIAL--12.6%
----------------------------------------------------------------------------------
50,000 Chemical Banking Corp. 1,750,000
----------------------------------------------------------------------------------
20,000 Citicorp, Conv. Pfd., Series 13, 5.375% 2,364,400
----------------------------------------------------------------------------------
80,000 Citicorp, PERCS, Series 15, 8.25% 1,560,000
----------------------------------------------------------------------------------
80,000 (b) Equitable Cos., Inc., Conv. Pfd., Series C, 5.73% 3,870,000
----------------------------------------------------------------------------------
20,000 First Interstate Bancorp. 1,622,500
----------------------------------------------------------------------------------
80,000 First Union Corp. 3,460,000
----------------------------------------------------------------------------------
10,000 J.P. Morgan & Co., Inc. 607,500
----------------------------------------------------------------------------------
90,000 PNC Financial Corp. 2,328,750
----------------------------------------------------------------------------------
2,000,000 (b) Telekom Malaysia Berhad, Conv. Bond, 4.00%, 10/3/2004 1,995,000
----------------------------------------------------------------------------------
30,000 Transamerica Corp. 1,507,500
---------------------------------------------------------------------------------- --------------
Total 21,065,650
---------------------------------------------------------------------------------- --------------
HEALTHCARE--6.6%
----------------------------------------------------------------------------------
60,000 American Home Products Corp. 3,600,000
----------------------------------------------------------------------------------
1,000,000 Healthsouth Rehabilitation, Conv. Sub. Deb., 5.00%, 4/1/2001 1,165,000
----------------------------------------------------------------------------------
10,000 Johnson & Johnson 516,250
----------------------------------------------------------------------------------
37,000 Meditrust (REIT) 1,184,000
----------------------------------------------------------------------------------
37,500 Merck & Co., Inc. 1,331,250
----------------------------------------------------------------------------------
19,999 Nationwide Health Properties, Inc. (REIT) 769,967
----------------------------------------------------------------------------------
100,000 Omega Healthcare Investors 2,487,500
---------------------------------------------------------------------------------- --------------
Total 11,053,967
---------------------------------------------------------------------------------- --------------
INDUSTRIAL/MANUFACTURING--12.4%
----------------------------------------------------------------------------------
122,400 Centerpoint Properties Corp. 2,448,000
----------------------------------------------------------------------------------
40,000 Deere & Co. 2,745,000
----------------------------------------------------------------------------------
100,000 Dresser Industries, Inc. 2,025,000
----------------------------------------------------------------------------------
70,000 Johnson Controls, Inc. 3,482,500
----------------------------------------------------------------------------------
74,700 McDermott International, Inc. 1,923,529
----------------------------------------------------------------------------------
95,000 Tenneco, Inc., Conv. Pfd., Series A, 9.50% 3,871,250
----------------------------------------------------------------------------------
300,000 (b) Westinghouse Electric Corp., PEPS, Series C 4,199,700
---------------------------------------------------------------------------------- --------------
Total 20,694,979
---------------------------------------------------------------------------------- --------------
TECHNOLOGY--5.6%
----------------------------------------------------------------------------------
2,000,000 Cypress Semiconductor Corp., Conv. Sub. Note, 3.15%, 3/15/2001 1,670,000
----------------------------------------------------------------------------------
1,000,000 General Instrument Corp., Conv. Jr. Sub. Note, 5.00%, 6/15/2000 1,305,000
----------------------------------------------------------------------------------
1,000,000 LSI Logic Corp., Conv. Sub. Note, 5.50%, 3/15/2001 1,635,000
----------------------------------------------------------------------------------
50,000 Lockheed Corp. 3,481,250
----------------------------------------------------------------------------------
30,000 Martin-Marietta Corp. 1,335,000
---------------------------------------------------------------------------------- --------------
Total 9,426,250
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.5%
----------------------------------------------------------------------------------
100,000 Ryder Systems, Inc. 2,562,500
---------------------------------------------------------------------------------- --------------
UTILITIES--15.9%
----------------------------------------------------------------------------------
40,000 Bell Atlantic Corp. 2,120,000
----------------------------------------------------------------------------------
60,000 British Telecommunications, PLC, ADR 2,287,500
----------------------------------------------------------------------------------
40,000 (b) Cointel/Telfonica De Argentina, SA, PRIDES, 7.00% 2,698,240
----------------------------------------------------------------------------------
40,000 Entergy Corp. 930,000
----------------------------------------------------------------------------------
40,000 GTE Corp. 1,215,000
----------------------------------------------------------------------------------
60,000 Hong Kong Telecommunications, ADR 1,207,500
----------------------------------------------------------------------------------
45,500 (b) Nacional Financiera, SNC, PRIDES, 11.25%, 5/18/98 2,980,250
----------------------------------------------------------------------------------
60,000 Pacific Enterprises 1,275,000
----------------------------------------------------------------------------------
35,000 (b) Philippine Long Distance, Conv. Pfd., Series II, 5.75% 1,165,955
----------------------------------------------------------------------------------
60,000 Sonat, Inc. 1,882,500
----------------------------------------------------------------------------------
80,000 Southwestern Bell Corp. 3,400,000
----------------------------------------------------------------------------------
100,000 Sprint Corp. 3,812,500
----------------------------------------------------------------------------------
100,000 Westcoast Energy, Inc. 1,650,000
---------------------------------------------------------------------------------- --------------
Total 26,624,445
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS & CONVERTIBLE SECURITIES
(IDENTIFIED COST $151,346,611) 152,867,906
---------------------------------------------------------------------------------- --------------
CORPORATE BONDS--4.3%
- ------------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.6%
----------------------------------------------------------------------------------
$ 1,000,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 983,750
----------------------------------------------------------------------------------
1,000,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 930,000
----------------------------------------------------------------------------------
1,000,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 970,000
----------------------------------------------------------------------------------
500,000 Stone Container Corp., 1st Mtg. Note, 10.75%, 10/1/2002 501,250
----------------------------------------------------------------------------------
1,000,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 942,500
---------------------------------------------------------------------------------- --------------
Total 4,327,500
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--0.3%
----------------------------------------------------------------------------------
500,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 535,000
---------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--1.1%
----------------------------------------------------------------------------------
1,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 992,500
----------------------------------------------------------------------------------
1,000,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 907,500
---------------------------------------------------------------------------------- --------------
Total 1,900,000
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--0.3%
----------------------------------------------------------------------------------
500,000 SCI Television, Inc., Sr. Sec. Note, 11.00%, 6/30/2005 507,500
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $7,533,094) 7,270,000
---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--5.5%
- ------------------------------------------------------------------------------------------------
9,205,000 J.P. Morgan Securities, Inc., 4.90%, dated 9/30/94, due 10/3/94
(at amortized cost) 9,205,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $168,084,705) $ 169,342,906+
---------------------------------------------------------------------------------- --------------
</TABLE>
(a) Convertible securities, which in total ($39,990,360) represent 22.9% of
total assets ($174,871,607) at
September 30, 1994.
(b) Restricted securities--Investments in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 14.2% of net assets.
* 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.
The cost of investments for federal tax purposes amounts to $168,084,705.
The net unrealized appreciation on a federal tax cost basis amounts to
$1,258,201, which is comprised of $6,262,802 appreciation and $5,004,601
depreciation at September 30, 1994.
Note: The categories of investments are shown as a percentage of net assets
($167,442,681) at September 30, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
PEPS--Participating Equity Preferred Stock
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 1994
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $168,084,705) $169,342,906
- ---------------------------------------------------------------------------------------------------
Cash 54,305
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 3,916,138
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 995,617
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 562,641
- --------------------------------------------------------------------------------------------------- -----------
Total assets 174,871,607
- --------------------------------------------------------------------------------------------------- -----------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $6,861,285
- ----------------------------------------------------------------------------------------
Payable for capital stock redeemed 302,228
- ----------------------------------------------------------------------------------------
Dividends payable 222,822
- ----------------------------------------------------------------------------------------
Accrued expenses 42,591
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 7,428,926
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 14,837,195 shares of capital stock outstanding $167,442,681
- --------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $167,866,738
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,258,805
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (2,299,387)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 616,525
- --------------------------------------------------------------------------------------------------- ------------
Total Net Assets $167,442,681
- --------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares ($103,332,216 / 9,154,818 shares of capital stock outstanding) $11.29
- --------------------------------------------------------------------------------------------------- ------------
Fortress Shares ($32,998,656 / 2,925,220 shares of capital stock outstanding) $11.28
- --------------------------------------------------------------------------------------------------- ------------
Class C Shares ($31,111,809 / 2,757,157 shares of capital stock outstanding) $11.28
- --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $11.29)* $11.82
- --------------------------------------------------------------------------------------------------- -----------
Fortress Shares (100/99 of $11.28)* $11.39
- --------------------------------------------------------------------------------------------------- -----------
Class C Shares $11.28
- --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF PROCEEDS ON REDEMPTION PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares $11.29
- --------------------------------------------------------------------------------------------------- -----------
Fortress Shares (99/100 of $11.28)** $11.17
- --------------------------------------------------------------------------------------------------- -----------
Class C Shares (99/100 of $11.28)** $11.17
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended September 30, 1994
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest income $ 776,254
- -----------------------------------------------------------------------------------------------------
Dividend income 3,087,753
- ----------------------------------------------------------------------------------------------------- -----------
Total investment income 3,864,007
- ----------------------------------------------------------------------------------------------------- -----------
EXPENSES:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee $ 456,184
- ----------------------------------------------------------------------------------------
Directors' fees 5,500
- ----------------------------------------------------------------------------------------
Administrative personnel and services fees 92,754
- ----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 34,786
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 84,590
- ----------------------------------------------------------------------------------------
Capital stock registration costs 74,166
- ----------------------------------------------------------------------------------------
Legal fees 8,118
- ----------------------------------------------------------------------------------------
Auditing fees 18,850
- ----------------------------------------------------------------------------------------
Printing and postage 78,000
- ----------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 119,851
- ----------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 34,623
- ----------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 35,596
- ----------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 34,623
- ----------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 106,788
- ----------------------------------------------------------------------------------------
Insurance premiums 5,775
- ----------------------------------------------------------------------------------------
Taxes 2,625
- ----------------------------------------------------------------------------------------
Miscellaneous 2,613
- ---------------------------------------------------------------------------------------- -----------
Total expenses 1,195,442
- ----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 268,852
- ---------------------------------------------------------------------------------------- -----------
Net expenses 926,590
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 2,937,417
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (657,012)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 3,588,479
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments 2,931,467
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 5,868,884
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C>
1995* 1994
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 2,937,417 $ 2,446,477
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments ($657,012 net loss and $1,691,070 net
gain, respectively, as computed for federal tax purposes) (657,012) 1,691,070
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 3,588,479 (5,584,588)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 5,868,884 (1,447,041)
- --------------------------------------------------------------------------------- -------------- --------------
NET EQUALIZATION (DEBITS) AND CREDITS-- 112,421 364,341
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------------
Class A Shares (1,918,013) (2,025,184)
- ---------------------------------------------------------------------------------
Fortress Shares (532,040) (136,752)
- ---------------------------------------------------------------------------------
Class C Shares (466,786) (321,427)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (2,916,839) (2,483,363)
- --------------------------------------------------------------------------------- -------------- --------------
CAPITAL STOCK TRANSACTIONS--
(Exclusive of amounts allocated to net investment income)
- ---------------------------------------------------------------------------------
Proceeds from sales of shares 48,311,731 115,275,927
- ---------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 1,739,458 1,366,110
- ---------------------------------------------------------------------------------
Cost of shares redeemed (15,979,955) (13,384,498)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets from capital stock transactions 34,071,234 103,257,539
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 37,135,700 99,691,476
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 130,306,981 30,615,505
- --------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $616,525 and
$483,527, respectively) $ 167,442,681 $ 130,306,981
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
*Six months ended September 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS B SHARES WERE EFFECTIVE, BUT DID NOT HAVE PUBLIC INVESTMENT AS OF
SEPTEMBER 30, 1994. ACCORDINGLY, THERE ARE NO FINANCIAL HIGHLIGHTS FOR SUCH
SHARES. THE FINANCIAL HIGHLIGHTS LISTED BELOW REPRESENT HISTORICAL INFORMATION
FOR CLASS A SHARES.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, APRIL
30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995* 1994 1993 1992 1991 1990 1989 1988*** 1987**
NET ASSET VALUE, BEGINNING
OF PERIOD $ 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 0.22 0.43 0.55 0.69 0.84 0.91 0.89 0.72
0.23
- ----------------------------
Net realized and unrealized
gain (loss) on investments 0.23 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81)
0.18
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- ----------- --------
- ---
Total from investment
operations 0.45 0.58 1.77 1.77 0.68 (0.27) 2.48 (0.09)
0.41
- ----------------------------
LESS DISTRIBUTIONS
- ----------------------------
Dividends to shareholders
from net investment income (0.22) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86) (0.72)
(0.23)
- ----------------------------
Distributions to
shareholders from net
realized gain on investment
transactions -- -- -- -- -- (0.52) -- (0.15)
- --
- ----------------------------
Distributions in excess of
net investment income -- -- -- -- -- (0.41)*** -- --
- --
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- ----------- --------
- ---
TOTAL DISTRIBUTIONS (0.22) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87)
(0.23)
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- ----------- --------
- ---
NET ASSET VALUE, END OF
PERIOD $ 11.29 $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22 $
10.18
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- ----------- --------
- ---
TOTAL RETURN+ 4.12% 5.29% 18.98% 21.19% 8.95% (3.19)% 28.25% (0.54)%
3.63%
- ----------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Expenses 1.03%(a) 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%(a)
1.22%(a)
- ----------------------------
Net investment income 4.04%(a) 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%(a)
6.93%(a)
- ----------------------------
Expense waiver/
reimbursement (b) 0.36 (a) 0.89% 1.60% 1.46% 1.46% 1.43% 1.25% 0.86 (a) 0.28
%(a)
- ----------------------------
SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(000 omitted) $103,332 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895
$10,866
- ----------------------------
Portfolio turnover rate 27% 43% 79% 115% 31% 54% 49% 41%
24%
- ----------------------------
</TABLE>
* Six months ended September 30, 1994 (unaudited).
** Reflects operations for the period from December 30, 1986 to April 30,
1987.
*** For the period from May 1, 1987 to March 31, 1988. (Effective November 1,
1987, the Fund changed its fiscal year-end from April 30 to March 31.)
**** Distributions in excess of net investment was a result of certain book and
tax timing differences. This distribution did not represent a return of
capital for federal income tax purposes.
Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) 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)
Liberty Equity Income Fund, Inc.
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS B SHARES WERE EFFECTIVE, BUT DID NOT HAVE PUBLIC INVESTMENT AS OF
SEPTEMBER 30, 1994. ACCORDINGLY, THERE ARE NO FINANCIAL HIGHLIGHTS FOR SUCH
SHARES. THE FINANCIAL HIGHLIGHTS LISTED BELOW REPRESENT HISTORICAL INFORMATION
FOR CLASS C SHARES.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C>
1995* 1994**
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 10.76
- -------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment income 0.18 0.34
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.22 0.28
- ------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.40 0.62
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.18) (0.32)
- ------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.28 $ 11.06
- ------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN*** 3.65% 5.66%
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------
Expenses 1.78 (a) 1.79%(a)
- -------------------------------------------------------------------------------------
Net investment income 3.30 (a) 2.99%(a)
- -------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.36 (a) 0.89%(a)
- -------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $31,112 $24,632
- -------------------------------------------------------------------------------------
Portfolio turnover rate 27% 43%
- -------------------------------------------------------------------------------------
</TABLE>
* Six months ended September 30, 1994 (unaudited).
** Reflects operations for the period May 3, 1993 (date of initial public
offering) to March 31, 1994.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) 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)
Liberty Equity Income Fund, Inc.
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
CLASS B SHARES WERE EFFECTIVE, BUT DID NOT HAVE PUBLIC INVESTMENT AS OF
SEPTEMBER 30, 1994. ACCORDINGLY, THERE ARE NO FINANCIAL HIGHLIGHTS FOR SUCH
SHARES. THE FINANCIAL HIGHLIGHTS LISTED BELOW REPRESENT HISTORICAL INFORMATION
FOR FORTRESS SHARES.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C>
1995* 1994**
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 11.74
- -------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------
Net investment income 0.21 0.17
- -------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.22 (0.68)
- ------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.43 (0.51)
- -------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.21) (0.17)
- ------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.28 $ 11.06
- ------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN*** 3.91% (4.43%)
- -------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------
Expenses 1.28 (a) 1.29%(a)
- -------------------------------------------------------------------------------------
Net investment income 3.84 (a) 3.71%(a)
- -------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.36 (a) 0.89%(a)
- -------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $32,999 $21,010
- -------------------------------------------------------------------------------------
Portfolio turnover rate 27% 43%
- -------------------------------------------------------------------------------------
</TABLE>
* Six months ended September 30, 1994 (unaudited).
** Reflects operations for the period November 12, 1993 (date of initial public
offering) to March 31, 1994.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) 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)
Liberty Equity Income Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
September 30, 1994
(unaudited)
(1) ORGANIZATION
The Liberty Equity Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end, load, management investment company. Effective September 27, 1994, the
Fund added Class B Shares. The Fund provides four classes of shares: Class A
Shares, Fortress Shares, Class B Shares and Class C Shares. As of September 30,
1994, Class B Shares did not have public investment.
(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.
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days, or less may be stated
at amortized cost, which approximates value.
B. 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
at least equals the principal amount of the repurchase agreement, including
accrued interest.
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 guidelines 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.
C. INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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").
D. 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 taxable income.
Accordingly, no provisions for federal tax are necessary. At March
31, 1994, the Fund, for federal tax purposes had a capital loss
carryforward of $1,642,375, 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 in 2000 ($1,642,375).
E. EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of capital stock 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
per share is unaffected by sales or redemptions of capital stock.
F. 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.
G. 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. Additional information on each restricted security held
at September 30, 1994 is as follows:
<TABLE>
<CAPTION>
ACQUISITION COST
SECURITY ACQUISITION DATE PER UNIT
<S> <C> <C>
Cointel/Telfonica De Argentina, SA, PRIDES 2/24/94 $72.00
Equitable Cos., Inc. 3/14/94-4/19/94 50.00-56.50
Freeport McMoran, Inc. 9/7/94-9/14/94 47.00-47.75
Nacional Financiera, SNC, PRIDES 5/11/94 60.3625
Philippine Long Distance 1/20/93 24.00
Riverwood International Inc. 9/10/93-8/9/94 100.00-111.00
Telekom Malaysia Berhad 9/22/94 100.00
Westinghouse Electric Corp., PEPS 3/22/94 14.44
</TABLE>
H. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At September 30, 1994, there were 2,000,000,000 shares of $0.001 par value
capital stock authorized. Of these shares, 500,000,000 have been designated as
Class A Shares of the Fund, 500,000,000 have been designated as Class B Shares
of the Fund, 500,000,000 have been designated as Fortress Shares of the Fund,
and 500,000,000 have been designated as Class C Shares of the Fund. Transactions
in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1995*** 1994
-------------------------- ---------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 2,393,812 $ 26,643,178 5,708,267 $ 65,363,045
- -------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 108,716 1,214,151 102,333 1,163,080
- -------------------------------------------------------
Shares redeemed (1,001,137) (11,151,917) (962,354) (11,025,715)
- ------------------------------------------------------- ----------- -------------- ---------- --------------
Net change resulting from Class A share
transactions 1,501,391 $ 16,705,412 4,848,246 $ 55,500,410
- ------------------------------------------------------- ----------- -------------- ---------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1995*** 1994*
-------------------------- ---------------------------
FORTRESS SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,189,212 $ 13,286,990 1,992,039 $ 23,193,220
- ---------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 29,095 325,072 7,232 83,446
- ---------------------------------------------------------
Shares redeemed (193,359) (2,156,036) (98,998) (1,136,145)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from Fortress share
transactions 1,024,948 $ 11,456,026 1,900,273 $ 22,140,521
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
* For the period from November 12, 1993 (date of initial public offering) to
March 31, 1994.
*** Six months ended September 30, 1994.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1995*** 1994**
-------------------------- ---------------------------
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold 750,860 $ 8,381,563 2,322,963 $ 26,719,662
- --------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 17,926 200,235 10,379 119,584
- --------------------------------------------------------
Shares redeemed (239,061) (2,672,002) (105,909) (1,222,638)
- -------------------------------------------------------- ---------- ------------- ---------- --------------
Net change resulting from Class C share
transactions 529,725 5,909,796 2,227,433 $ 25,616,608
- -------------------------------------------------------- ---------- ------------- ---------- --------------
Net change resulting from Fund share
transactions 3,056,064 $ 34,071,234 8,975,952 $ 103,257,539
- -------------------------------------------------------- ---------- ------------- ---------- --------------
</TABLE>
** For the period from May 3, 1993 (date of initial public offering) to March
31, 1994.
*** Six months ended September 30, 1994.
(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 fee equal to .60 of
1% of the Fund's average daily net assets. The Adviser may voluntarily choose to
waive its fee and reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and reimbursement at any time at
its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. The FAS fee 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 AND SHAREHOLDER 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 Fortress Shares, Class B Shares and Class C
Shares. The Plan provides that the Fund may incur distribution expenses of up to
.25 of 1% of the average daily net assets of the Fortress Shares, annually, and
up to .75 of 1% of the average daily net assets of the Class B Shares and Class
C Shares, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of each class of shares
for the period. This fee is to obtain certain personal services for shareholders
and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEE--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type and number of accounts and transactions made by
shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended September 30, 1994 were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 77,718,613
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 38,283,763
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(6) SUBSEQUENT EVENTS
As of October 1, 1994, the maximum sales load as a percentage of the public
offering price is 5.5% for Class A Shares.
Trustees Officers
- -----------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
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.
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
530461102
530461201
530461409
8110102 (11/94)
APPENDIX A
The graphic presentation displayed here consists of a
three dimensional mountain chart which represents the change
in the value of a hypothetical $8,000 initial investment in
the Liberty Equity Income Fund, Inc. The x-axis represents
time and is divided into eight units. The first unit
represents the period of time from the Fund's inception date
of December 30, 1986, and increases in yearly increments to
the last unit representing 1994. The y-axis represents
dollar value and is divided into four equal units with
increments of $5,000. The values of the y-axis range from
$0 to $20,000.
The initial investment on December 30, 1986 is $8,000.
The total value of investment on September 30, 1994 was
$16,844. The key in the upper left hand corner of the chart
states that the principal value of an $8,000 investment is
represented by blue shading and gray shading represents
reinvested income.
APPENDIX B
The graphic presentation displayed here consists of a
three dimensional mountain chart which represents the change
in the value of a hypothetical $8,000 investment ($1,000
invested each year for eight years) in the Liberty Equity
Income Fund, Inc., with all dividends and capital gains
reinvested. The x-axis represents time and is divided into
eight units. The first unit represents the period of time
from the Fund's inception date of December 30, 1986, and
increases in yearly increments to the last unit representing
1994. The y-axis represents dollar value and is divided
into five equal units with increments of $3,000. The values
of the y-axis range from $0 to $15,000.
The total value of eight consecutive annual $1,000
investments on September 30, 1994 was $12,850. The key in
the upper left hand corner of the chart states that the
principal value of annual $1,000 investments is represented
by blue shading and gray shading represents reinvested
income.
APPENDIX C
The graphic presentation displayed here consists of a
three dimensional mountain chart which represents the change
in the value of a hypothetical $10,000 initial investment in
the Liberty Equity Income Fund, Inc. The x-axis represents
time and is divided into seven units. The first unit
represents the period of time from September 30, 1987, and
increases in yearly increments to the last unit representing
1994. The y-axis represents dollar value and is divided
into five equal units with increments of $5,000. The values
of the y-axis range from $0 to $25,000.
The initial investment on September 30, 1987 is
$10,000. The total value of investment on September 30,
1994 is $20,313. The key in the upper left hand corner of
the chart states that the principal value of a $10,000
investment is represented by blue shading and gray shading
represents reinvested income.
