President's Message
- - --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the 8th Annual Report for Liberty
Equity Income Fund, Inc. You will notice that this report
features a design that is easier to read. We have also
included more charts that show how investments in the
Fund have grown over time. I trust you will find this
format both informative and appealing.
This report covers the 12-month period ended March 31,
1994. It begins with an interview with the Fund's
co-portfolio managers Christopher H. Wiles, Vice
President of Federated Advisers, and Timothy E. Keefe,
Assistant Vice President of Federated Advisers. It
follows with a series of performance charts, a complete
listing of the Fund's stock holdings, and its financial
statements.
During the period, investors added $100 million to the
Fund's assets. As a result, the Fund's net assets stood
at $130.6 million at the period's end.
The Fund's highly diversified portfolio of stocks and
convertible securities included more than 40 companies
spanning 12 key industry sectors. The portfolio's issues
include such familiar names as FORD, EASTMAN KODAK,
PHILIP MORRIS, SEARS, TEXACO, CITICORP, J.P. MORGAN,
BRISTOL-MEYERS SQUIBB, and AMERICAN STANDARD.
Despite the first quarter 1994 rise in interest rates,
the Fund's net asset value increased. At the beginning of
the period, the share price based on net asset value was
$10.91, compared to $11.06 on March 31, 1994. Dividends
paid to shareholders totaled $0.43 per share. Total
return for Class A Shares during the period was 5.29%
based on net asset value.
We believe the key to long-term investment success is
adding to your holdings on a regular basis. By
reinvesting your dividends, you can increase your share
balance on which future dividends will be paid.
Thank you for participating in this growing Fund. We
welcome your comments and suggestions.
Very sincerely yours,
Richard B. Fisher
President
May 16, 1994
Investment Review
- - --------------------------------------------------------------------------------
Q. THE LAST SIX MONTHS IN THE EQUITY MARKET HAVE
SEEN INCREASED VOLATILITY AND THE BEGINNING OF
A CORRECTION. TO WHAT DO YOU ATTRIBUTE THIS
PERFORMANCE?
A. The stock market experienced 36 months in a row
without a correction of 10% or more until
February of 1994. In February, our Federal Reserve
("Fed") Chairman, Alan Greenspan, tightened the money
spigot in order to cool inflation. This tightening
led to a sell off in the fixed-income markets along
with a correction in equities. The Fed's actions have
Christopher H. increased investor uncertainty, and whenever uncertainty
Wiles, CFA increases, volatility increases.
Vice President,
Federated Advisers
Q. HOW HAS LIBERTY EQUITY INCOME FUND PERFORMED OVER
THIS PERIOD?
A. The Fund's total return has been able to stay
close to the Standard and Poor's ("S&P") 500
Index* over the last six months. LEIF Class A
Shares had a total return of -2.42% and the S&P 500 had
a total total return of -1.62%. But, over the last 12
months, LEIF Class A Shares had a total return of
5.29% versus an increase in the S&P 500 of only 1.43%.**
* This index is unmanaged.
** Fund total return is based on net asset value, which
does not reflect the sales load or contingent deferred
sales charge, if applicable.
- - --------------------------------------------------------------------------------
Q. WHAT AREAS OF THE FUND CONTRIBUTED POSITIVELY TO
THE FUND'S PERFORMANCE, AND WHAT AREAS
DETRACTED FROM IT?
A. Our investments in Real Estate Investment Trusts
("REITs") performed well in the first quarter.
This segment of the Fund comprises 14% of Fund
assets and was up approximately 5%. On the negative
side, we have 14% invested internationally. While this
had been very rewarding last year, it cost the Fund
roughly 1.6% in the first quarter as investments around
the world dropped between 5% and 20%.
Q. HOW IS LIBERTY EQUITY INCOME FUND POSITIONED
HEADING INTO THE SECOND QUARTER?
A. We believe we are going into the second quarter
well positioned. We currently have 16% of the
Fund's assets in utilities. This group has
recently gone through a brutal correction and should
now perform in line with the market with considerably
less risk. The finance sector is another area that we
believe offers compelling values. We also have a 16%
weighting in finance. Our other large weights are in
the energy sector (11%), the industrial/manufacturing
sector (10%), and the basic industry sector (9%).
Q. DO YOU EXPECT TO MAKE ANY STRATEGY
CHANGES THIS YEAR?
A. No, we believe that the Fund's
strategy of investing in good
dividend-paying common stocks, convertible
securities, foreign securities, REITs, and
some high-yield corporate bonds will
continue to provide investors with good
current income, long-term capital
appreciation, and relatively low volatility.
Liberty Equity Income Fund, Inc.
(Class A Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN LIBERTY EQUITY INCOME FUND, INC. (CLASS A SHARES)
SINCE INCEPTION THROUGH MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in the Liberty Equity
Income Fund, Inc. (Class A Shares) (the "Fund") from December 30, 1986
(inception) to March 31, 1994 compared to the Standard & Poor's 500 Index (S&P
500) and the Lipper Equity Income Fund Index (LEII).+
See Appendix A.
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 ORIGINAL COST.
+ The Lipper Equity Income Fund Index is a compilation of mutual fund total
returns reported to Lipper Analytical Services, Inc. Each fund is reported net
of sales loads, expenses, or other fees that the SEC requires to be reflected
in a fund's performance.
* 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). The Fund's performance assumes the reinvestment of all dividends
and distributions. The S&P 500 and the LEII have been adjusted to reflect
reinvestment of dividends on securities in the indices.
Liberty Equity Income Fund, Inc.
(Fortress Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN LIBERTY EQUITY INCOME FUND, INC. (FORTRESS SHARES)
SINCE INCEPTION THROUGH MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in the Liberty Equity
Income Fund, Inc. (Fortress Shares) (the "Fund") from November 12, 1993 to March
31, 1994 compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper
Equity Income Fund Index (LEII).+
See Appendix B.
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 ORIGINAL COST.
+ The Lipper Equity Income Fund Index is a compilation of mutual fund total
returns reported to Lipper Analytical Services, Inc. Each fund is reported
net of sales loads, expenses, or other fees that the SEC requires to
be reflected in a fund's performance.
* 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 LEII have been adjusted to reflect
reinvestment of dividends on securities in the indices. The ending value of
the investment reflects a contingent deferred sales charge of 1.00% on any
redemption less than four years from the purchase date.
Liberty Equity Income Fund, Inc.
(Class C Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN LIBERTY EQUITY INCOME FUND, INC. (CLASS C SHARES)
SINCE INCEPTION THROUGH MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in the Liberty Equity
Income Fund, Inc. (Class C Shares) (the "Fund") from May 3, 1993 to March 31,
1994 compared to the Standard & Poor's 500 Index (S&P 500) and the Lipper Equity
Income Fund Index (LEII).+
See Appendix C.
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 ORIGINAL COST.
+ The Lipper Equity Income Fund Index is a compilation of mutual fund total
returns reported to Lipper Analytical Services, Inc. Each fund is reported net
of sales load, expenses, or other fees that the SEC requires to be reflected
in a fund's performance.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the investment reflects a contingent deferred sales charge of 1.00% on any
redemption less than one year from the purchase date. The S&P 500 and the LEII
are adjusted to reflect reinvestment of dividends on securities in the
indices.
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
$16,179.
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 $16,275 on 3/31/94. You would have
earned a 9.59%* 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 3/31/94, the Class A Shares' average annual one-year, five-year and
since inception on 12/30/86 total returns were 0.58%, 8.87%, and 10.20%
respectively. Class C Shares' total return since inception on
5/3/93 was 4.61%. Fortress Shares' total
return since inception on 11/12/93 was
- - -6.34%.
See Appendix D.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.5%
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.
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 $12,342.
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 didn't redeem any shares, you would have invested only $8,000, but
your account would have reached a total value of $12,342* by 3/31/94. You would
have earned an average annual total return of 9.48%.
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!
See Appendix E.
* 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._
Serving a Wide Range of Investors
- - --------------------------------------------------------------------------------
LIBERTY EQUITY INCOME FUND, INC. APPEALS TO A BROAD RANGE OF INVESTORS SEEKING
INCOME AND GROWTH.
The Fund invests primarily in a diversified portfolio of 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.
<TABLE>
<CAPTION>
SOME OF THE FUND'S MAJOR SHAREHOLDER GROUPS
<S> <C>
Individuals and Joint Tenants $18,385,719
IRAs 13,519,858
Trusts 3,191,721
Corporations 1,042,417
Custodians (under Uniform Gift to Minors Act) 827,954
</TABLE>
Liberty Equity Income Fund, Inc._
Portfolio Update
- - --------------------------------------------------------------------------------
The chart shows some of the Fund's best-performing holdings, in terms of how
much they increased in price over the year.
<TABLE>
<CAPTION>
TOP TEN PERFORMERS
Price Price
as of as of
Basic Industries 3/3/91 3/3/94 Percent Gained
<S> <C> <C> <C>
Ultramar Common $21.00 $26.00 23.81%
Martin Marietta Common $36.75 $44.00 19.73%
Citicorp CVT PFD DP 1/200 $91.75 $106.13 15.67%
Ford Motor Common $52.00 $58.75 12.98%
Royal Dutch Petrol. ADR $88.75 $99.38 11.97%
Johnson Controls Common $49.38 $55.00 11.39%
Ford Motor CNVT PFD $4.20 $90.25 $98.13 8.73%
Citicorp CVT PFD 1/12 $18.50 $19.75 6.67%
Freeport McMran CNVT Lyon 9% '06 $32.00 $33.38 4.30%
Phelps Dodge Common $50.38 $52.25 3.72%
</TABLE>
Liberty Equity Income Fund, Inc._
Hypothetical Investor Profile: Investing for Steady Growth
from a Fund That's Easy to Understand
- - --------------------------------------------------------------------------------
Eliot and Helen Barnes are a fictitious couple who share with many other
investors the goal of "slow and steady" growth from good dividend-paying stocks.
Eliot is an engineer working for a major corporation. Helen teaches school. On
March 31, 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 $18,988. This represents a 9.59%, minus any
applicable sales load and/or contingent deferred sales charge, annualized total
return. For the Barnes, that means dependable performance from good
dividend-paying stocks in 10 to 12 industry sectors that helps their money grow.
See Appendix F.
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
- - --------------------------------------------------------------------------------
March 31, 1994
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES ISSUE VALUE
<C> <S> <C>
- - ------------- ---------------------------------------------------------------------------------- --------------
(a)COMMON STOCKS & CONVERTIBLE SECURITIES--86.4%
- - -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--8.0%
----------------------------------------------------------------------------------
$ 110,000 Bowater, Inc., Conv. Pfd., PRIDES, 7.00% $ 2,598,750
----------------------------------------------------------------------------------
4,000,000 Freeport McMoran, Inc., Conv. Deb., 9.00% accrual, 8/5/2006 1,360,000
----------------------------------------------------------------------------------
25,000 Georgia-Pacific Corp. 1,600,000
----------------------------------------------------------------------------------
155,000 Kaiser Aluminum Corp., Conv. Pfd., PRIDES, 8.25% 1,550,000
----------------------------------------------------------------------------------
20,000 Phelps Dodge Corp. 1,045,000
----------------------------------------------------------------------------------
2,000,000 Riverwood International Corp., Conv. Sub. Note, 6.75%, 9/15/2003 2,200,000
---------------------------------------------------------------------------------- --------------
Total 10,353,750
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--4.9%
----------------------------------------------------------------------------------
20,194 Ford Motor Co. 1,175,194
----------------------------------------------------------------------------------
15,000 Ford Motor Co., Cumulative Conv. Pfd., Series A, 8.40% 1,471,875
----------------------------------------------------------------------------------
125,000 Kaufman and Broad Home Corp., Conv. Pfd., Series B, 8.75% 2,437,500
----------------------------------------------------------------------------------
100,000 Southwestern Properties (REIT) 1,287,500
---------------------------------------------------------------------------------- --------------
Total 6,372,069
---------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--4.2%
----------------------------------------------------------------------------------
45,000 Eastman Kodak Co. 1,996,875
----------------------------------------------------------------------------------
50,000 Philip Morris Companies, Inc. 2,537,500
----------------------------------------------------------------------------------
1,000,000 Unifi, Inc., Conv. Sub. Note, 6.00%, 3/15/2002 1,000,000
---------------------------------------------------------------------------------- --------------
Total 5,534,375
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--8.9%
----------------------------------------------------------------------------------
140,000 CBL (REIT) 2,730,000
----------------------------------------------------------------------------------
100,000 Horizon Outlet Centers (REIT) 2,662,500
----------------------------------------------------------------------------------
50,000 Sears, Roebuck & Co. 2,150,000
----------------------------------------------------------------------------------
40,000 Sears, Roebuck & Co., Conv. Pfd., Series A, 3.75% 2,110,000
----------------------------------------------------------------------------------
5,000,000 Turner Broadcasting System, Inc., LYON, 7.25% accrual, 2/13/2007 1,987,500
---------------------------------------------------------------------------------- --------------
Total 11,640,000
---------------------------------------------------------------------------------- --------------
20,000 Chevron Corp. 1,685,000
----------------------------------------------------------------------------------
13,000 Royal Dutch Petroleum Co. 1,291,875
----------------------------------------------------------------------------------
70,000 Societe Nationale ELF Aquitane ADR 2,283,750
----------------------------------------------------------------------------------
20,000 Texaco, Inc. 1,260,000
----------------------------------------------------------------------------------
70,000 Ultramar Corp. 1,820,000
----------------------------------------------------------------------------------
60,000 Valero Energy Corp. Conv. Pfd. 2,910,000
----------------------------------------------------------------------------------
59,400 YPF Sociedad Anonima ADR 1,410,750
---------------------------------------------------------------------------------- --------------
Total 12,661,375
---------------------------------------------------------------------------------- --------------
FINANCIAL--13.8%
----------------------------------------------------------------------------------
30,000 Bankers Trust of New York Corp. 2,126,250
----------------------------------------------------------------------------------
50,000 Chemical Banking Corp. 1,818,750
----------------------------------------------------------------------------------
20,000 Citicorp, Conv. Pfd., 5.375% 2,140,000
----------------------------------------------------------------------------------
80,000 Citicorp, Conv. Pfd., Series P., 8.25% 1,580,000
----------------------------------------------------------------------------------
20,000 Equitable Insurance, Conv. Pfd., 5.73% 1,100,000
----------------------------------------------------------------------------------
80,000 First Union Corp. 3,330,000
----------------------------------------------------------------------------------
35,000 J.P. Morgan & Co., Inc. 2,191,875
----------------------------------------------------------------------------------
80,000 PNC Bank Corp. 2,130,000
----------------------------------------------------------------------------------
30,000 Transamerica Corp. 1,515,000
---------------------------------------------------------------------------------- --------------
Total 17,931,875
---------------------------------------------------------------------------------- --------------
HEALTHCARE--4.9%
----------------------------------------------------------------------------------
50,000 American Home Products Corp. 2,900,000
----------------------------------------------------------------------------------
20,000 Bristol-Myers Squibb Co. 1,032,500
----------------------------------------------------------------------------------
50,000 Meditrust (REIT) 1,618,750
----------------------------------------------------------------------------------
19,999 Nationwide Health Properties (REIT) 787,461
---------------------------------------------------------------------------------- --------------
Total 6,338,711
---------------------------------------------------------------------------------- --------------
INDUSTRIAL/MANUFACTURING--10.4%
----------------------------------------------------------------------------------
110,000 Centerpoint Corp. 2,186,250
----------------------------------------------------------------------------------
30,000 Harsco Corp. 1,338,750
----------------------------------------------------------------------------------
20,000 Johnson Controls, Inc. 1,100,000
----------------------------------------------------------------------------------
100,000 McDermott International, Inc. 2,025,000
----------------------------------------------------------------------------------
70,000 Tenneco, Inc., Conv. Pfd., 9.50% 2,878,750
----------------------------------------------------------------------------------
300,000 Westinghouse Electric Corp., Conv. Pfd., 9.00%, PEPS (B) 4,012,500
---------------------------------------------------------------------------------- --------------
Total 13,541,250
---------------------------------------------------------------------------------- --------------
TECHNOLOGY--3.5%
----------------------------------------------------------------------------------
1,000,000 General Instrument Corp., 5.00%, 6/15/2000 1,130,000
----------------------------------------------------------------------------------
40,000 Lockheed Corp. 2,570,000
----------------------------------------------------------------------------------
20,000 Martin Marietta Corp. 880,000
---------------------------------------------------------------------------------- --------------
Total 4,580,000
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.0%
----------------------------------------------------------------------------------
1,250,000 Greyhound Lines, Inc., Conv. Sub. Deb., 8.50%, 3/31/2007 1,359,375
---------------------------------------------------------------------------------- --------------
UTILITIES--17.1%
----------------------------------------------------------------------------------
50,000 Ameritech Corp. 1,906,250
----------------------------------------------------------------------------------
35,000 BCE, Inc. 1,264,375
----------------------------------------------------------------------------------
60,000 British Telecommunications ADR 2,445,000
----------------------------------------------------------------------------------
40,000 Cointel/Telfonica De Argentina PRIDES, Conv. Pfd., 7.00% (B) 2,757,600
----------------------------------------------------------------------------------
40,000 Entergy Corp. 1,270,000
----------------------------------------------------------------------------------
25,000 GTE Corp. 775,000
----------------------------------------------------------------------------------
20,000 Hong Kong Telecommunications ADR 1,017,500
----------------------------------------------------------------------------------
50,000 NYNEX Corp. 1,725,000
----------------------------------------------------------------------------------
60,000 Pacific Enterprises 1,215,000
----------------------------------------------------------------------------------
60,000 Peco Energy Co. 1,665,000
----------------------------------------------------------------------------------
40,000 Philippine Long Distance, Conv. Pfd., 5.75% (b) 1,460,000
----------------------------------------------------------------------------------
60,000 PSI Resources, Inc. 1,402,500
----------------------------------------------------------------------------------
60,000 Sonat, Inc. 1,665,000
----------------------------------------------------------------------------------
100,000 Westcoast Energy, Inc. 1,687,500
---------------------------------------------------------------------------------- --------------
Total 22,255,725
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS & CONVERTIBLE SECURITIES
(IDENTIFIED COST $114,657,516) 112,568,505
---------------------------------------------------------------------------------- --------------
CORPORATE BONDS--4.2%
- - -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--1.1%
----------------------------------------------------------------------------------
500,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 500,000
----------------------------------------------------------------------------------
500,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 462,500
----------------------------------------------------------------------------------
500,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 488,750
---------------------------------------------------------------------------------- --------------
Total 1,451,250
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--0.4%
----------------------------------------------------------------------------------
500,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 530,000
---------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--1.9%
----------------------------------------------------------------------------------
500,000 Grand Union Co., Sr. Note, 12.25%, 7/15/2002 498,750
----------------------------------------------------------------------------------
1,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 1,015,000
----------------------------------------------------------------------------------
1,000,000 West Point Stevens, 9.375%, 12/15/2005 945,000
---------------------------------------------------------------------------------- --------------
Total 2,458,750
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--0.4%
----------------------------------------------------------------------------------
500,000 SCI Television, Inc., Sr. Sec. Note, 11.00%, 6/30/2005 501,250
---------------------------------------------------------------------------------- --------------
ENERGY--0.4%
----------------------------------------------------------------------------------
750,000 Triton Energy Corp., Sr. Sub. Disc. Note, 0/12.50%, 11/1/97 524,062
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $5,705,975) 5,465,312
- - ------------- ---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--13.8%
- - -------------------------------------------------------------------------------------------------
$ 17,950,000 J.P. Morgan Securities, Inc., 3.59%, dated 3/31/94, due 4/4/94
(at amortized cost) (Note 2B) $ 17,950,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $138,313,491**) (NOTES 2A & 2B) $ 135,983,817+
---------------------------------------------------------------------------------- --------------
</TABLE>
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
LYON--Liquid Yield Option Note (Merrill Lynch Trademark)
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
PEPS--Participating Equity Preferred Stock
REIT--Real Estate Investment Trust
(a) Convertible securities, which in total ($38,043,850) represent 27.5% of
total assets ($138,490,871) at March 31, 1994.
(b) Restricted securities--Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 6.3% of net assets (Note 2G).
* 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.
** Includes Advanstar Trust Certificates, which have been assigned a zero
value and zero identified cost.
+ The cost of investments for federal tax purposes amounts to $138,313,491.
The net unrealized depreciation on a federal tax cost basis amounts to
$2,329,674 and is comprised of $3,465,920 appreciation and $5,795,594
depreciaton at March 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($130,306,981) at March 31, 1994.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Assets and Liabilities
- - --------------------------------------------------------------------------------
March 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
- - ---------------------------------------------------------------------------------------------------
Investments in repurchase agreements $17,950,000
- - --------------------------------------------------------------------------------------
Investments in securities 118,033,817
- - -------------------------------------------------------------------------------------- -----------
Total investments in securities, at value (Notes 2A and 2B)
(identified and tax cost, $138,313,491) $135,983,817
- - ---------------------------------------------------------------------------------------------------
Cash 151,408
- - ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 1,596,810
- - ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 758,836
- - --------------------------------------------------------------------------------------------------- -----------
Total assets 138,490,871
- - --------------------------------------------------------------------------------------------------- -----------
LIABILITIES:
- - ---------------------------------------------------------------------------------------------------
Payable for investments purchased 7,507,300
- - --------------------------------------------------------------------------------------
Payable for capital stock redeemed 365,365
- - --------------------------------------------------------------------------------------
Dividends payable 152,142
- - --------------------------------------------------------------------------------------
Accrued expenses and other liabilities 159,083
- - -------------------------------------------------------------------------------------- -----------
Total liabilities 8,183,890
- - --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 11,781,133 shares of capital stock outstanding $130,306,981
- - --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF (NOTE 2H):
- - ---------------------------------------------------------------------------------------------------
Paid-in capital $133,795,503
- - ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,329,674)
- - ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,642,375)
- - ---------------------------------------------------------------------------------------------------
Undistributed net investment income 483,527
- - --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $130,306,981
- - --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE PER SHARE:
- - ---------------------------------------------------------------------------------------------------
Class A Shares ($84,665,136 / 7,653,427 shares of capital stock outstanding) $11.06
- - --------------------------------------------------------------------------------------------------- -----------
Fortress Shares ($21,009,994 / 1,900,273 shares of capital stock outstanding) $11.06
- - --------------------------------------------------------------------------------------------------- -----------
Class C Shares ($24,631,851 / 2,227,433 shares of capital stock outstanding) $11.06
- - --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF OFFERING PRICE PER SHARE*:
- - ---------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $11.06) $11.58
- - --------------------------------------------------------------------------------------------------- -----------
Fortress Shares (100/99 of $11.06) $11.17
- - --------------------------------------------------------------------------------------------------- -----------
Class C Shares $11.06
- - --------------------------------------------------------------------------------------------------- -----------
COMPUTATION OF PROCEEDS ON REDEMPTION PER SHARE**:
- - ---------------------------------------------------------------------------------------------------
Class A Shares (99.5/100 of $11.06) $11.00
- - --------------------------------------------------------------------------------------------------- -----------
Fortress Shares (99.0/100 of $11.06) $10.95
- - --------------------------------------------------------------------------------------------------- -----------
Class C Shares (99.0/100 of $11.06) $10.95
- - --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the prospectus.
**Under certain limited conditions, a contingent deferred sales charge of 0.50
of 1%, 1.00%, and 1.00% for Class A Shares, Fortress Shares, and Class C
Shares, respectively, was imposed. See "Contingent Deferred Sales Charge" in
the prospectus.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Operations
- - --------------------------------------------------------------------------------
Year Ended March 31, 1994
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- - ----------------------------------------------------------------------------------------------------
Interest income $ 865,566
- - ----------------------------------------------------------------------------------------------------
Dividend income 2,332,720
- - ---------------------------------------------------------------------------------------------------- -----------
Total investment income (Note 2C) 3,198,286
- - ---------------------------------------------------------------------------------------------------- -----------
EXPENSES:
- - ----------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 398,315
- - ---------------------------------------------------------------------------------------
Directors' fees 12,246
- - ---------------------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 308,878
- - ---------------------------------------------------------------------------------------
Custodian and recordkeeping fees 76,025
- - ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 85,121
- - ---------------------------------------------------------------------------------------
Capital stock registration costs 82,597
- - ---------------------------------------------------------------------------------------
Legal fees 19,615
- - ---------------------------------------------------------------------------------------
Auditing fees 28,969
- - ---------------------------------------------------------------------------------------
Printing and postage 83,623
- - ---------------------------------------------------------------------------------------
Shareholder service fees--Class A Shares (Note 4) 111,578
- - ---------------------------------------------------------------------------------------
Shareholder service fees--Fortress Shares (Note 4) 8,660
- - ---------------------------------------------------------------------------------------
Shareholder service fees--Class C Shares (Note 4) 25,472
- - ---------------------------------------------------------------------------------------
Distribution fees--Fortress Shares (Note 4) 76,417
- - ---------------------------------------------------------------------------------------
Distribution fees--Class C Shares (Note 4) 8,654
- - ---------------------------------------------------------------------------------------
Insurance premiums 7,291
- - ---------------------------------------------------------------------------------------
Taxes 4,080
- - ---------------------------------------------------------------------------------------
Miscellaneous 5,558
- - --------------------------------------------------------------------------------------- -----------
Total expenses 1,343,099
- - ---------------------------------------------------------------------------------------
Deduct--
- - ---------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 398,315
- - ----------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 192,975 591,290
- - ---------------------------------------------------------------------------- --------- -----------
Net expenses 751,809
- - ---------------------------------------------------------------------------------------------------- -----------
Net investment income 2,446,477
- - ---------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- - ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 1,691,070
- - ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (5,584,588)
- - ---------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (3,893,518)
- - ---------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $(1,447,041)
- - ---------------------------------------------------------------------------------------------------- -----------
</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,
----------------------------
1994 1993
-------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- - ----------------------------------------------------------------------------------
OPERATIONS--
- - ----------------------------------------------------------------------------------
Net investment income $ 2,446,477 $ 1,434,543
- - ----------------------------------------------------------------------------------
Net realized gain (loss) on investments ($1,691,070 net gain and $468,715 net
gain, respectively, as computed for federal tax purposes) 1,691,070 468,715
- - ----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (5,584,588) 2,806,958
- - ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from operations (1,447,041) 4,710,216
- - ---------------------------------------------------------------------------------- -------------- -------------
NET EQUALIZATION (DEBITS) AND CREDITS (NOTE 2E)-- 364,341 13,866
- - ---------------------------------------------------------------------------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- - ----------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- - ----------------------------------------------------------------------------------
Class A Shares (2,025,184) (1,399,767)
- - ----------------------------------------------------------------------------------
Fortress Shares (136,752) --
- - ----------------------------------------------------------------------------------
Class C Shares (321,427) --
- - ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets resulting from distributions to shareholders (2,483,363) (1,399,767)
- - ---------------------------------------------------------------------------------- -------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
(Exclusive of amounts allocated to net investment income)
- - ----------------------------------------------------------------------------------
Proceeds from sales of shares 115,275,927 8,193,654
- - ----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing
payment of dividends declared 1,366,110 683,247
- - ----------------------------------------------------------------------------------
Cost of shares redeemed (13,384,498) (6,761,667)
- - ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets from capital stock transactions 103,257,539 2,115,234
- - ---------------------------------------------------------------------------------- -------------- -------------
Change in net assets 99,691,476 5,439,549
- - ----------------------------------------------------------------------------------
NET ASSETS:
- - ----------------------------------------------------------------------------------
Beginning of period 30,615,505 25,175,956
- - ---------------------------------------------------------------------------------- -------------- -------------
End of period (including undistributed net investment income of $483,527 and
$148,587, respectively) $ 130,306,981 $ 30,615,505
- - ---------------------------------------------------------------------------------- -------------- -------------
</TABLE>
(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)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
28.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, APRIL 30,
1994 1993 1992 1991 1990 1989 1988*** 1987**
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22 $ 10.18 $10.00
- - ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - ----------------------------------------
Net investment income 0.43 0.55 0.69 0.84 0.91 0.89 0.72 0.23
- - ----------------------------------------
Net realized and unrealized gain (loss)
on investments 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81) 0.18
- - ---------------------------------------- --------- --------- --------- --------- --------- --------- ----------- -----------
Total from investment operations 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 (0.43) (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 (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87) (0.23)
- - ---------------------------------------- --------- --------- --------- --------- --------- --------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22 $ 10.18
- - ---------------------------------------- --------- --------- --------- --------- --------- --------- ----------- -----------
TOTAL RETURN* 5.29% 18.98% 21.19% 8.95% (3.19)% 28.25% (0.54)% 3.63%
- - ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - ----------------------------------------
Expenses 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%(a) 1.22%(a)
- - ----------------------------------------
Net investment income 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%(a) 6.93%(a)
- - ----------------------------------------
Expense waiver/reimbursement (b) 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) $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895 $10,866
- - ----------------------------------------
Portfolio turnover rate 43% 79% 115% 31% 54% 49% 41% 24%
- - ----------------------------------------
</TABLE>
* Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
** Reflects operations for the period from December 30, 1986 to April 30,
1987. For the period from the start of business, November 19, 1986 to
December 29, 1986 net investment income aggregating $0.0685 per share
($685) was distributed to the Fund's investment adviser. Such distribution
represented the net investment income of the Fund prior to the initial
public offering of Fund shares which commenced on December 30, 1986.
*** 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.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above
(Note 4).
(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 THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
28.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994**
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.74
- - -------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - -------------------------------------------------------------------------------------------------
Net investment income 0.17
- - -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.68)
- - ------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.51)
- - -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- - -------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- - ------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 11.06
- - ------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN* (4.43)%
- - -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - -------------------------------------------------------------------------------------------------
Expenses 1.29%(a)
- - -------------------------------------------------------------------------------------------------
Net investment income 3.71%(a)
- - -------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.89%(a)
- - -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $21,010
- - -------------------------------------------------------------------------------------------------
Portfolio turnover rate 43%
- - -------------------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period November 12, 1993 (date of initial public
offering) to March 31, 1994.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(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 THE PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors on page
28.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994**
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.76
- - -------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - -------------------------------------------------------------------------------------------------
Net investment income 0.34
- - -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.28
- - ------------------------------------------------------------------------------------------------- ------
Total from investment operations 0.62
- - -------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- - -------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.32)
- - ------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $11.06
- - ------------------------------------------------------------------------------------------------- -------
TOTAL RETURN* 5.66%
- - -------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - -------------------------------------------------------------------------------------------------
Expenses 1.79%(a)
- - -------------------------------------------------------------------------------------------------
Net investment income 2.99%(a)
- - -------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.89%(a)
- - -------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - -------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $24,632
- - -------------------------------------------------------------------------------------------------
Portfolio turnover rate 43%
- - -------------------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period May 3, 1993 (date of initial public
offering) to March 31, 1994.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Notes to Financial Statements
- - --------------------------------------------------------------------------------
March 31, 1994
(1) ORGANIZATION
The Liberty Equity Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end, load,
management investment company.
The Fund provides three classes of shares: Class A Shares, Fortress Shares, and
Class C Shares. Fortress Shares and Class C Shares are identical in all respects
to Class A Shares except that Fortress Shares and Class C Shares are sold
pursuant to a distribution plan ("Plan") adopted in accordance with Investment
Company Act Rule 12b-1. Class A Shares, Fortress Shares, and Class C Shares are
also subject to certain sales and contingent deferred sales charges.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sales 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 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 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
are amortized as required by the Internal Revenue Code.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the provisions
of the Internal Revenue Code ("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. As a result,
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 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 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 an independent pricing
service, at bid or asked prices 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 March 31, 1994 is as follows:
<TABLE>
<CAPTION>
ACQUISITION COST
SECURITY ACQUISITION DATE PER UNIT
- - -------- ---------------- -----------------
<S> <C> <C>
Cointel/Telfonica De Argentina,
PRIDES, Conv. Pfd., 7.00% 2/24/94 $72.00
Philippine Long Distance, Conv. Pfd., 5.75% 1/20/93 24.00
Westinghouse Electric Corp.,
Conv. Pfd., 9.00%, PEPS 3/22/94 14.44
</TABLE>
H. RECLASSIFICATION--During the year ended March 31, 1994, the Fund adopted
Statement of Position 93-2, "Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies." Accordingly, permanent book and tax
differences have been reclassified to paid-in-capital. The Fund
reclassified $5,272 from accumulated net realized loss on investments and
$7,485 from undistributed net investment income, respectively, to
paid-in-capital in accordance with SOP 93-2. Net investment income, net
realized gains, and net assets were not affected by this change.
I. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At March 31, 1994, there were 2,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 750,000,000 have been designated as Class A
Shares of the Fund, 500,000,000 have been designated as Fortress Shares of the
Fund, and 750,000,000 have been designated as Class C Shares of the Fund.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1994 1993
-------------------------- ------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
- - --------------------------------------------------------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Shares sold 5,708,267 $ 65,363,045 813,215 $ 8,193,654
- - ---------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 102,333 1,163,080 68,994 683,247
- - ---------------------------------------------------------
Shares redeemed (962,354) (11,025,715) (681,810) (6,761,667)
- - --------------------------------------------------------- ---------- ------------ ---------- -----------
Net change resulting from capital stock
transactions 4,848,246 $ 55,500,410 200,399 $ 2,115,234
- - --------------------------------------------------------- ---------- ------------ ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1994*
--------------------------
FORTRESS SHARES SHARES DOLLARS
- - ------------------------------------------------------------------------------------ ---------- ------------
<S> <C> <C>
Shares sold 1,992,039 $23,193,220
- - -------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 7,232 83,446
- - -------------------------------------------------------------------------------------
Shares redeemed (98,998) (1,136,145)
- - ------------------------------------------------------------------------------------- ---------- -----------
Net change resulting from capital stock transactions 1,900,273 $22,140,521
- - ------------------------------------------------------------------------------------- ---------- -----------
</TABLE>
* For the period November 12, 1993 (date of initial public offering) to March
31, 1994.
Liberty Equity Income Fund, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1994**
--------------------------
CLASS C SHARES SHARES DOLLARS
- - ------------------------------------------------------------------------------------ ---------- ------------
<S> <C> <C>
Shares sold 2,322,963 $ 26,719,662
- - -------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 10,379 119,584
- - -------------------------------------------------------------------------------------
Shares redeemed (105,909) (1,222,638)
- - ------------------------------------------------------------------------------------- ---------- --------------
Net change resulting from capital stock transactions 2,227,433 $ 25,616,608
- - ------------------------------------------------------------------------------------- ---------- --------------
</TABLE>
** For the period May 3, 1993 (date of initial public offering) to March 31,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
("Adviser"), receives for its services an annual investment fee equal to .60 of
1% of the Fund's average daily net assets. Adviser may voluntarily choose to
waive its fee and reimburse certain operating expenses of the Fund. Adviser can
modify or terminate this voluntary waiver and reimbursement at any time at its
sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the 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 any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940. 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 and Class C Shares. The Plan
provides that the Fund may incur distribution expenses of up to 0.25% of 1% of
the average daily net assets of the Fortress Shares, annually, and up to 0.75%
of 1% of the average daily net assets of the Class C Shares, annually, to
compensate FSC.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25 of 1% of average net assets
for the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEE--Federated Services Company ("FServ")
serves as transfer agent and dividend disbursing agent for the Fund. The fee
based on the size, type and number of accounts and transactions is made by
shareholders.
Certain of the Officers and Directors of the Fund are Officers and Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 1994 were as follows:
<TABLE>
<S> <C>
- - --------------------------------------------------------------------------------------------------
PURCHASES $ 116,806,061
- - -------------------------------------------------------------------------------------------------- --------------
SALES $ 26,568,239
- - -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Ernst & Young, Independent Auditors
- - --------------------------------------------------------------------------------
To the Board of Directors,
LIBERTY EQUITY INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of Liberty
Equity Income Fund, Inc., including the portfolio of investments, as of March
31, 1994, 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 the financial highlights for each of 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 audit 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, 1994 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
Liberty Equity Income Fund, Inc. at March 31, 1994, the results of its
operations for the year then ended, the 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
Pittsburgh, Pennsylvania
May 6, 1994
Directors Officers
- - --------------------------------------------------------------------------------
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 John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains
facts concerning its objective and policies, management
fees, expenses and other information.
[LOGO] LIBERTY
EQUITY
INCOME
FUND, INC.
(Formerly Convertible-Securities
and Income, Inc.)
8TH ANNUAL REPORT
March 31, 1994
Established 1986
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8042506 (5/94)
APPENDIX A
The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. Liberty Equity Income
Fund, Inc. Class A Shares (the "Fund") is represented by a
solid line. The Standard and Poor's 500 Index is
represented by a dotted line and the Lipper Equity Income
Fund Index is represented by a broken line. The line graph
is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the Fund,
Standard and Poor's 500 Index and Lipper Equity Income Fund
Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from December 30,
1986, through March 31, 1994. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to Standard and Poor's 500 Index and Lipper
Equity Income Fund Index; the ending values are $20,216,
$23,201, and $20,786, respectively. There is also a legend
in the center bottom of the graphic presentation which
indicates the Average Annual Total Return for the 1 year, 5
year, and Start of Performance (12/30/86); the Average
Annual Total Returns are 0.58%, 8.87%, and 10.20%,
respectively.
APPENDIX B
The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. Liberty Equity Income
Fund, Inc. Fortress Shares (the "Fund") is represented by a
solid line. The Standard and Poor's 500 Index is
represented by a dotted line and the Lipper Equity Income
Fund Index is represented by a broken line. The line graph
is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the Fund,
Standard and Poor's 500 Index and Lipper Equity Income Fund
Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from November 12,
1993, through March 31, 1994. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to Standard and Poor's 500 Index and Lipper
Equity Income Fund Index; the ending values are $9,367,
$9,710, and $10,274, respectively. There is also a legend
in the center bottom of the graphic presentation which
indicates the Average Annual Total Return since Start of
Performance (11/12/93); the Average Annual Total Return is
(6.34%).
APPENDIX C
The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. Liberty Equity Income
Fund, Inc. Class C Shares (the "Fund") is represented by a
solid line. The Standard and Poor's 500 Index is
represented by a dotted line and the Lipper Equity Income
Fund Index is represented by a broken line. The line graph
is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the Fund,
Standard and Poor's 500 Index and Lipper Equity Income Fund
Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from May 3, 1993
through March 31, 1994. The right margin reflects the
ending value of the hypothetical investment in the Fund as
compared to Standard and Poor's 500 Index and Lipper
Equity Income Fund Index; the ending values are $10,461,
$10,359, and $11,095, respectively. There is also a legend
in the center bottom of the graphic presentation which
indicates the Average Annual Total Return since Start of
Performance (5/3/93); the Average Annual Total Return is
4.61%.
APPENDIX D
The graphic presentation here displayed consists of a
boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The color-
coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial
investment of $8,000 in Liberty Equity Income Fund, Inc.
Class A Shares in 1986 would have grown to $16,179. The "x"
axis reflects the cost of investment, the "y" axis reflects
computation periods from 1986 to 1994, and the right margin
reflects a total investment range from $0 to $20,000. The
chart further indicates the ending market value attributable
to principal, as well as the ending market value
attributable to reinvested income.
APPENDIX E
The graphic presentation is a visual representation of
Liberty Equity Income Fund, Inc. Class A Shares annual
investment of $1,000 per year from 12/30/86 through 3/31/94.
This graphic presentation includes a boxed legend directly
above the corresponding mountain chart. The legend
establishes the shading variations as representations of the
following:
1. Principal Value of Annual $1000 Investments
2. Reinvested Income
The "x" axis reflects a total investment range from $0 to
$15,000 and the "y" axis reflects annual computation
intervals from 1986 through 1994. The color-coded chart
assumes an initial investment of $1,000 on 12/30/86 and
seven subsequent investments of $1,000 on each anniversary
date for a total of $8,000. The chart concludes that the
investment would have grown to $12,342.
APPENDIX F
The graphic representation is a visual representation of
Liberty Equity Income Fund, Inc. Class A Shares growth from
an initial investment of $10,000 from 12/30/86 through
3/31/94. This graphic presentation includes a boxed legend
directly above the corresponding chart. The legend
establishes the shading variations as representations of the
following:
1. Principal Value of $10,000 Investment
2. Reinvested Income
The "x" axis reflects a total investment range from $0 to
$25,000 and the "y" axis reflects annual computation
intervals from 1986 through 1994. The color-coded mountain
chart assumes an initial investment of $10,000 on 12/30/86
and an ending valaue of $18,988 as of March 31, 1994.
