1933 Act File No. 33-6901
1940 Act File No. 811-4743
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
X
Pre-Effective Amendment No.
Post-Effective Amendment No. 18 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 X
Amendment No. 15 X
LIBERTY EQUITY INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
x immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:
x filed the Notice required by that Rule on May 16, 1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need
not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Liberty
Equity Income Fund, Inc. , which is comprised of three classes
of shares, (1) Class A Shares, (2) Class C Shares, and (3)
Fortress Shares, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page (1, 2, 3).
Item 2. Synopsis Summary of Fund Expenses (1, 2,
3).
Item 3. Condensed Financial
Information Financial Highlights (1, 2, 3);
Performance Information
(1,2,3).
Item 4. General Description of
Registrant General Information (1, 2,
3); Liberty Family of Funds (1,
2); Liberty Family Retirement
Program (1, 2); Fortress
Investment Program (3);
Investment Information (1, 2,
3); Investment Objectives (1,
2, 3); Investment Policies (1,
2, 3); Portfolio Turnover (1,
2, 3); Risks (1, 2, 3);
Investment Limitations (1, 2,
3); Other Classes of Shares (1,
2, 3).
Item 5. Management of the Fund Fund Information; Management of
the Fund (1, 2, 3);
Distribution of Class A Shares
(1); Distribution of Class C
Shares (2); Distribution of
Fortress Shares (3); Other
Payments to Financial
Institutions (1, 2) ;
Administration of the Fund (1,
2, 3); Brokerage Transactions
(1, 2, 3).
Item 6. Capital Stock and Other
Securities Dividends and Distributions (1,
2, 3); Shareholder Information
(1, 2, 3); Voting Rights (1, 2,
3); Tax Information (1, 2, 3);
Federal Income Tax (1, 2, 3);
Pennsylvania Corporate and
Personal Property Taxes (1, 2,
3).
Item 7. Purchase of Securities Being
Offered Net Asset Value (1, 2, 3);
Investing in Class A Shares
(1); Investing in Class C
Shares (2); Investing in
Fortress Shares (3); Share
Purchases (1, 2, 3); Minimum
Investment Required (1, 2, 3);
What Shares Cost (1, 2, 3);
Reducing the Sales Charge (1);
Eliminating the Sales Charge
(3); Systematic Investment
Program (1, 2, 3); Exchanging
Securities for Fund Shares (1,
2, 3); Certificates and
Confirmations (1, 2, 3);
Retirement Plans (1, 2);
Exchange Privilege (1, 2, 3);
Reduced Sales Charge (1);
Requirements for Exchange (1,
2); Tax Consequences (1, 2);
Making an Exchange (1, 2).
Item 8. Redemption or Repurchase Redeeming Class A Shares (1);
Redeeming Class C Shares (2);
Redeeming Fortress Shares (3);
Through a Financial Institution
(1, 2, 3); Directly From the
Fund (1, 2); Directly by Mail
(3); Contingent Deferred Sales
Charge (1, 2, 3); Systematic
Withdrawal Program (1, 2, 3);
Accounts With Low Balances (1,
2, 3); Exchanges for Shares of
Other Funds (3).
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION.
Item 10. Cover Page Cover Page (1, 2, 3).
Item 11. Table of Contents. Table of Contents (1, 2, 3).
Item 12. General Information and
History. General Information About the
Fund (1, 2, 3).
Item 13. Investment Objectives and
Policies. Investment Objectives and
Policies (1, 2, 3).
Item 14. Management of the Fund. See Part A - Management of the
Fund (1, 2, 3).
Item 15. Control Persons and Principal
Holders of Securities. The Funds (1, 2, 3).
Item 16. Investment Advisory and Other
Services. Investment Advisory Services
(1, 2, 3); Administrative
Services (1, 2, 3).
Item 17. Brokerage Allocation. Brokerage Transactions (1, 2,
3).
Item 18. Capital Stock and Other
Securities. Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered. Purchasing Shares (1, 2, 3);
Determining Net Asset Value (1,
2, 3); Exchange Privilege
(Fortress Shares Only) (3);
Redeeming Shares (1, 2, 3).
Item 20. Tax Status. Tax Status (1, 2, 3).
Item 21. Underwriters. See Part A - Distribution of
(Class A , Class C, or
Fortress) Shares.
Item 22. Calculation of Performance
Data. Total Return (1, 2, 3); Yield
(1, 2, 3); Performance
Comparisons (1, 2, 3);
Item 23. Financial Statements. Incorporated by reference to
Annual Report of Registrant
dated March 31, 1994 (File Nos.
33-6901 and 881-4743).
LIBERTY EQUITY INCOME FUND, INC.
CLASS A SHARES
PROSPECTUS
The Class A Shares of Liberty Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE CLASS A SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class A Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class C Shares, and Fortress Shares dated May 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
Liberty Family Retirement Program 4
INVESTMENT INFORMATION 5
- ------------------------------------------------------
Investment Objective 5
Investment Policies 5
Acceptable Investments 5
Convertible Securities 5
Zero Coupon Convertible Securities 6
Temporary Investments 7
Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 7
Lending of Portfolio Securities 7
Put and Call Options 7
Financial Futures and Options
on Futures 8
Risks 8
Restricted and Illiquid Securities 8
Foreign Securities 9
High-Yield Corporate Debt Obligations 9
Portfolio Turnover 10
Investment Limitations 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN CLASS A SHARES 11
- ------------------------------------------------------
Share Purchases 11
Through a Financial Institution 11
Directly from the Distributor 11
Minimum Investment Required 12
What Shares Cost 12
Dealer Concession 13
Reducing the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 14
Reinvestment Privilege 14
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 14
Concurrent Purchases 14
Systematic Investment Program 14
Exchanging Securities for Fund Shares 15
Certificates and Confirmations 15
Dividends and Distributions 15
Retirement Plans 15
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
Reduced Sales Charge 16
Requirements for Exchange 16
Tax Consequences 16
Making an Exchange 16
Telephone Instructions 16
REDEEMING CLASS A SHARES 17
- ------------------------------------------------------
Through a Financial Institution 17
Directly from the Fund 17
By Telephone 17
By Mail 17
Signatures 18
Contingent Deferred Sales Charge 18
Systematic Withdrawal Program 19
Accounts with Low Balances 19
FUND INFORMATION 19
- ------------------------------------------------------
Management of the Fund 19
Board of Directors 19
Officers and Directors 20
Investment Adviser 23
Advisory Fees 23
Adviser's Background 23
Other Payments to Financial
Institutions 23
Distribution of Class A Shares 24
Distribution and Shareholder
Services Plans 24
Administration of the Fund 25
Administrative Services 25
Custodian 25
Transfer Agent and
Dividend Disbursing Agent 25
Legal Counsel 25
Independent Auditors 25
Brokerage Transactions 25
SHAREHOLDER INFORMATION 26
- ------------------------------------------------------
Voting Rights 26
TAX INFORMATION 26
- ------------------------------------------------------
Federal Income Tax 26
Pennsylvania Corporate and Personal
Property Taxes 26
PERFORMANCE INFORMATION 27
- ------------------------------------------------------
OTHER CLASSES OF SHARES 27
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--FORTRESS SHARES 29
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 30
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS A SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................ 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)..................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1)................................................. 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)......................................... None
Exchange Fee............................................................................................... None
<CAPTION>
ANNUAL CLASS A SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C>
Management Fee (after waiver) (2).......................................................................... 0.00%
12b-1 Fee (3).............................................................................................. 0.00%
Total Other Expenses (after expense reimbursement)......................................................... 1.00%
Shareholder Services Fee (4)................................................................ 0.21%
Total Class A Shares Operating Expenses (5)....................................................... 1.00%
</TABLE>
- ---------
(1) Shareholders who purchased Shares with the proceeds of a redemption of
shares of a mutual fund sold with a sales charge and not distributed by
Federated Securities Corp. prior to June 1, 1994, will be charged a
contingent deferred sales charge by the Fund's distributor of .50 of 1% for
redemptions made within one year of purchase. See "Contingent Deferred Sales
Charge."
(2) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.60%.
(3) The Class A Shares have no present intention of paying or accruing the 12b-1
fee during the fiscal year ending March 31, 1995. If the Class A Shares were
paying or accruing the 12b-1 fee, the Class would be able to pay up to 0.50%
of its average daily net assets for the 12b-1 fee. "See Fund Information."
(4) The maximum shareholder services fee is 0.25%.
(5) The total Class A Shares operating expenses would have been 1.89% absent the
voluntary waiver of the management fee and the voluntary reimbursement of
certain other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period....... $ 55 $ 75 $ 98 $ 162
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class A Shares of the Fund. The Fund also offers two additional classes of
shares, Class C Shares and Fortress Shares. Class A Shares, Class C Shares and
Fortress Shares are subject to certain of the same expenses; however, Class C
Shares are subject to a 12b-1 fee of 0.75% and a contingent deferred sales
charge of 1.00%, but are not subject to a sales load. Fortress Shares are
subject to a 12b-1 fee of 0.25%, a contingent deferred sales charge of 1.00% and
a maximum sales load of 1.00%. See "Other Classes of Shares."
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report dated March 31,
1994, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund free of charge.
<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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On December 21, 1992, shareholders of the Fund approved changing the name
of the Fund from Convertible Securities and Income, Inc. to Liberty Equity
Income Fund, Inc. The Fund's address is Liberty Center, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") has established three
classes of shares, known as Class A Shares, Class C Shares, and Fortress Shares.
This prospectus relates only to the Class A Shares ("Shares") of the Fund.
Shares of the Fund are designed primarily for individuals and institutions
seeking high current income and capital appreciation through a professionally
managed, diversified portfolio of convertible securities. A minimum initial
investment of $500 is required, unless the investment is in a retirement
account, in which case the minimum initial investment is $50.
Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on certain Shares redeemed within one year of purchase. For a more
complete description, see "Redeeming Class A Shares."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family of Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are the
Class A Shares of:
_ American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
_ Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
_ Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
_ International Equity Fund, providing long-term capital growth and income
through international securities;
_ International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
_ Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
_ Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
_ Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
_ Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
_ Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
_ Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
_ Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the State of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
Shareholders of Class A Shares participating in The Liberty Account are
designated as Liberty Life Members. Liberty Life Members are exempt from sales
charges on future purchases in and exchanges between the Class A Shares of any
funds in the Liberty Family of Funds, as long as they maintain a $500 balance in
one of the Liberty Funds.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may
select a group of investment options to be offered in a plan which also uses the
Program for recordkeeping and administrative services. Additional fees are
charged to participating plans for these services. As part of the Program,
exchanges may be readily made between investment options selected by the
employer or plan trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Capital Growth Fund, Fund for U.S. Government
Securities,Inc., International Equity Fund, International Income Fund, Liberty
High Income Bond Fund, Inc., Liberty Utility Fund, Inc., Prime Cash Series, and
Stock and Bond Fund, Inc.
No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its objectives by
investing at least 65% of its assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks and securities
(including debt securities) that are convertible into common stocks. The portion
of the Fund's total assets invested in common stocks, preferred stocks, and
convertible securities will vary according to the Fund's assessment of market
and economic conditions and outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Fund
invests in convertible bonds rated "B" or higher by Standard & Poor's
Corporation ("Standard & Poor's"), or Moody's Investors Service, Inc.
("Moody's") at the time of investment, or if unrated, of comparable quality. If
a convertible bond is rated below "B" according to the characteristics set forth
here after the Fund has purchased it, the Fund is not required to drop the
convertible bond from the portfolio, but will consider appropriate action.
The investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the investment
adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed-income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are debt
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero coupon
convertible securities are convertible into a specific number of shares of the
issuer's common stock. In addition, zero coupon convertible securities usually
have put features that provide the holder with the opportunity to sell the bonds
back to the issuer at a stated price before maturity. Generally, the prices of
zero coupon convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS. The Fund may also invest temporarily, in amounts of 35%
or less of the Fund's assets, in cash and cash items during times of unusual
market conditions to maintain liquidity. Cash items may include the following
short-term obligations:
commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances);
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. The Fund will limit its purchase of
securities on a when-issued or delayed delivery basis to no more than 20% of the
value of its total assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities, on a short-term or a long-term basis, up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Board of Directors and will receive collateral in the form of cash
or U.S. government securities equal to at least 100% of the value of the
securities loaned.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write call options on securities either held in its
portfolio or for which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and
expiration dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may not.
The Fund will not buy call options or write put options without further
notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in interest rates. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, much depends on the ability of the portfolio
manager to predict market conditions based upon certain economic analysis
and factors. There is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors such as interest rate movements. In these events, the Fund may lose
money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest up to 10% of its
net assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities
determined by the Directors not to be liquid, non-negotiable time deposits and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
FOREIGN SECURITIES. The Fund reserves the right to invest in foreign securities
which are traded publicly in the United States. Investments in foreign
securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher. The Fund's investment adviser will consider these and
other factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet the Fund's
standards and objectives. The Fund will only purchase securities issued in U.S.
dollar denominations.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the
value of its total assets in corporate debt obligations that are not investment
grade bonds or are not rated but are determined by the Fund's investment adviser
to be of comparable quality. Securities which are rated BBB or lower by Standard
& Poor's or Baa or lower by Moody's either have speculative characteristics or
are speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligations. A description of the rating
categories is contained in the Appendix to the Statement of Additional
Information. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its assets in
corporate debt obligations that are not investment-grade bonds during the
current fiscal year.
Federated Advisers, the Fund's investment adviser, attempts to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that the Fund may borrow up to one-third
of the value of its total assets and pledge up to 10% of the value of
those assets to secure such borrowings;
sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions;
lend any of its assets except portfolio securities up to one-third of the
value of its total assets; or
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale
of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of
any issuer;
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
commit more than 5% of the value of its total assets to premiums on open
put option positions; or
invest more than 5% of its total assets in warrants.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class A Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class A Shares in the liabilities of the Fund and those attributable to Class A
Shares, and dividing the remainder by the total number of Class A Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class C Shares and Fortress Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares of
the Fund. Orders through a financial institution are considered received when
the Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp., once an account has been
established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Liberty Equity Income Fund, Inc.--Class A
Shares; and
mail both to Federated Services Company, P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire, once an account has
been established call the Fund. All information needed will be taken over the
telephone, and the order is considered received
when State Street Bank receives payment by wire. Federal funds should be wired
as follows: Federated Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts 02105; Attention: Mutual Fund Servicing Division; For
Credit to: Liberty Equity Income Fund, Inc.--Class A Shares; Title or Name of
Account; Wire Order Number and/or Account Number. Shares cannot be purchased by
wire on days on which the New York Stock Exchange is closed and on federal
holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class A Shares is $500 unless the investment
is in a retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts which must be in amounts of at least $50. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 % 4.50 % 4.71
$100,000 but less than $250,000 % 3.75 % 3.90
$250,000 but less than $500,000 % 2.50 % 2.56
$500,000 but less than $750,000 % 2.00 % 2.04
$750,000 but less than $1 million % 1.00 % 1.01
$1 million or more % 0.00 % 0.00
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Liberty Life Members are exempt from sales charges.
No sales charge is imposed for Shares purchased through bank trust departments
or investment advisers registered under the Investment Advisers Act of 1940, as
amended, or retirement plans where the third party administrator has entered
into certain arrangements with Federated Securities Corp. or its affiliates.
However, investors who purchase Shares through a trust department or investment
adviser may be charged an additional service fee by that institution.
No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in Funds available in the Liberty Family Retirement
Program.
DEALER CONCESSION. For sales of Shares a dealer will normally receive up
to 90% of the applicable sales charge. Any portion of the sales charge
which is not paid to a dealer will be retained by the distributor. However,
the distributor may offer to pay dealers up to one hundred percent of the
sales load retained by it. Such payments may take the form of cash or
promotional incentives, such as payment of certain expenses of qualified
employees and their spouses to attend informational meetings about the Fund
or other special events at recreational-type facilities, or of items of
material value. In some instances, these incentives will be made available
only to dealers whose employees have sold or may sell significant amount of
Shares. On purchases of $1 million or more, the investor pays no sales
charge; however, the distributor will make twelve monthly payments to the
dealer totaling 0.25% of the public offering price over the first year
following the purchase. Such payments are based on the original purchase
price of the Shares outstanding at each month end.
The sales charge for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp. Federated
Securities Corp. may pay fees to banks out of the sales charge in exchange
for sales and/or administrative services performed on behalf of the bank's
customers in connection with the initiation of customer accounts and
purchases of Shares.
Effective June 1, 1994, and until further notice, the entire amount of the
applicable sales charge will be reallowed to dealers. In addition, the
distributor will pay dealers additional bonus payments in an amount equal
to 0.50% of the public offering price of the Shares sold, with the
exception of any transaction in which no sales load is paid at all.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege;
purchases with proceeds from redemptions of unaffiliated mutual fund
shares; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $90,000 and he
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 3.75%,
not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Shares are already owned or
that purchases are being combined. The Fund will reduce the sales charge after
it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the funds in the Liberty Family of Funds over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold 4.5% of the total amount intended to be purchased in escrow
(in shares) until such purchase is completed.
The 4.5% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. The letter may be dated
as of a prior date to include any purchases made within the past 90 days towards
the dollar fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE. If Shares have been redeemed in the Fund, the
shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to receive this
elimination of sales charge. If the shareholder redeems his Shares in the Fund,
there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which were
sold with a sales charge or commission and were not distributed by Federated
Securities Corp. (This does not include shares of a mutual fund which were or
would be subject to a contingent deferred sales charge upon redemption.) The
purchase must be made within 60 days of the redemption, and Federated Securities
Corp. must be notified by the investor in writing, or by his financial
institution, at the time the purchase is made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $30,000 in one
of the other Liberty Funds with a sales charge, and $70,000 in this Fund, the
sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined
after an order is received by the transfer agent, plus the applicable sales
charge. A shareholder may apply for participation in this program through his
financial institution or directly through the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain convertible securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. From time to time the Fund will prepare a list of
securities which may be eligible for acceptance and furnish this list to brokers
upon request. Securities accepted by the Fund are valued in the same manner as
the Fund values its portfolio securities. Investors wishing to exchange
securities should first contact their investment broker, who will contact
Federated Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on payment dates at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased after the
record date, those Shares are not entitled to that month's dividend.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
Federated Securities Corp. and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A shareholders may exchange all or some of their Shares for Class A Shares
in other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain funds which are advised by
subsidiaries or affiliates of Federated Investors ("Federated Funds") which are
sold with a sales charge different from that of the Fund or with no sales
charge. These exchanges are made at net asset value plus the difference between
the Fund's sales charge already paid and any sales charge of the fund into which
the Shares are to be exchanged, if higher. Neither the Fund nor any of the funds
in the Liberty Family of Funds imposes any additional fees on exchanges.
Participants in a plan under the Liberty Family Retirement Program may exchange
all or some of their Shares for Class A Shares of other funds offered under the
plan at net asset value.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction of the sales
charge, Federated Securities Corp. must be notified by the shareholder in
writing or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $500. Before the exchange, the shareholder must receive the
prospectus of the Federated Fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class A Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. Telephone exchange instructions may be recorded. If the
instructions are given by a broker, a telephone authorization form completed by
the broker must be on file with the Fund. If reasonable procedures are not
followed by the Fund, it may be liable for loses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts,
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone instructions will be processed as of 4:00 p.m.
(Eastern time) and must be received by the Fund before that time for Shares to
be exchanged the same day. Shareholders exchanging into a fund will not receive
any dividend that is payable to shareholders of record on that date. This
privilege may be modified or terminated at any time.
REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form. Redemptions
of Shares held through the Liberty Family Retirement Program will be governed by
the requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire-transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire-transfer is $1,000. If at any time
the Fund shall determine it necessary to terminate or modify these methods of
redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on these services are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Fund, it may be liable for loses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the
shareholder's name, the Fund name and class of shares name, the account number,
and the Share or dollar amount requested, and should be signed exactly as the
shares are registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures of all registered owners on written redemption requests
guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares with the proceeds of a redemption of shares of
a mutual fund sold with a sales charge and not distributed by Federated
Securities Corp. prior to June 1, 1994, will be charged a contingent deferred
sales charge by the Fund's distributor of .50 of 1% for redemptions made within
one year of purchase. Purchases under the program made after that date will not
be subject to any type of contingent deferred sales charge. The contingent
deferred sales charge will be calculated based upon the lesser of the original
purchase price of the Shares or the net asset value of the Shares when redeemed.
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of short-term or long-term
capital gains. Redemptions are deemed to have occurred in the following order:
i) Shares acquired through the reinvestment of dividends and long-term capital
gains, ii) purchases of Shares occurring more than one year before the date of
redemption, iii) purchases of Shares within the previous year without the use of
redemption proceeds as described above, and iv) purchases of Shares within the
previous year through the use of redemption proceeds as described above.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified retirement plan, other than an IRA, Keogh
Plan, or a custodial account, following retirement; (ii) a total or partial
distribution from an IRA, Keogh Plan, or a custodial account, after the
beneficial owner attains age 59-1/2; or (iii) from the death or disability of
the beneficial owner. The exemption from the contingent deferred sales charge
for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend
to account transfers, rollovers, or other redemptions made for purposes of
reinvestment.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or Liberty
Family Retirement Program funds, or in connection with redemptions by the Fund
of accounts with low balances. No contingent deferred sales charge will be
charged for redemptions from the Liberty Family Retirement Program.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually use up, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through Federated Securities Corp. Due
to the fact that Shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing Shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement accounts, and pay the proceeds
to the shareholder if the account balance falls below the required minimum value
of $500. This requirement does not apply, however, if the balance falls below
$500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Adviser, Federated Management and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard First Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President and
Director of the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private
Associates, Inc., Realtors real estate ventures in Southwest Florida; Director,
3255 Tamiami Trail North Trustee, or Managing General Partner of the Funds; formerly,
Naples, FL President, Naples Property Management, Inc.
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly Vice Chairman and Director, PNC Bank,
Pittsburgh, PA N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; and Trustee,
Federated Investors Tower and Director Federated Advisers, Federated Management and Federated
Pittsburgh, PA Research; Trustee, Federated Administrative Services;
Trustee, Federated Services Company, President or Vice
President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son
of John F. Donahue, Chairman and Director of the Fund.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director Trustee, or Managing General Partner
of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street Bank
& Trust Company and State Street Boston Corporation; and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
& Technology.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President
Pittsburgh, PA or Vice President of the Funds; Director or Trustee of some
of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors Tower and Treasurer Vice President and Treasurer, Federated Advisers, Federated
Pittsburgh, PA Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Trustee, Federated Services Company; Chairman,
Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Trustee, Federated Services Company; Executive
Vice President, Secretary, and Trustee, Federated
Administrative Services; Trustee, Federated Services
Company; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Tower Vice President, Federated Securities Corp.; President and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended.
\Members of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers (the "adviser"), the Fund's investment adviser, subject to direction by
the Directors. The adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .60 of 1% of the Fund's average daily net assets. The adviser
may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since August of
1991. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _Federated Securities Corp. will
pay financial institutions, at the time of purchase, an amount equal to .50
of 1% of the net asset value of Shares purchased by their clients or
customers under the Liberty Family Retirement Program or by certain
qualified plans as approved by Federated Securities Corp. (Such payments
are subject to a
reclaim from the financial institution should the assets leave the program
within 12 months after purchase.) These payments will be made directly by
the distributor from its assets, and will not be made from the assets of
the Fund or by the assessment of a sales charge on Shares. Furthermore, the
Adviser or its affiliates may offer to pay a fee from their own assets to
financial institutions as financial assistance for providing substantial
marketing, sales and operational support to the distributor. The support
may include sponsoring sales, educational and training seminars for their
employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the dealer sells or may sell, and/or
upon the type and nature of sales or operational support furnished by the
dealer.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. _Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund may pay to the distributor an amount, computed at an annual rate of .50
of 1% of the average daily net asset value of Class A Shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers. The Fund is not currently making payments under the Distribution
Plan, nor does it anticipate doing so in the immediate future.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class A Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in these capacities or should
Congress relax current restrictions on depository institutions, the Board of
Directors will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for shares of the
Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
One Oxford Centre, Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Class A
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class A Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per Share on the
last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Class A Shares, and therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class A Shares, Class C
Shares, and Fortress Shares. Because Fortress Shares may be subject to lower
Rule 12b-1 fees, the yield for Fortress Shares for the same period, may exceed
that of Class C Shares. Because Class A Shares are subject to a higher maximum
sales load, the total return for Class C Shares and Fortress Shares for the same
period may exceed that of Class A Shares. Depending on the dollar amount
invested and the time period for which any class of shares is held, the total
return for any particular class may exceed that of another.
From time to time the Fund may advertise the performance of Class A Shares,
Class C Shares and Fortress Shares using certain financial publications and/or
compare the performance of Class A Shares, Class C Shares and Fortress Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund presently offers Fortress Shares and Class C Shares. Class C Shares
offered by the Fund are sold primarily to customers of financial institutions at
net asset value with no initial sales charge. Class C Shares are subject to a
contingent deferred sales charge of up to 1.00%. Class C Shares are distributed
pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is
paid a fee of up to .75 of 1%, in addition to a shareholder services fee of .25
of 1% of the Class C Shares' average daily net assets. Investments in Class C
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Fortress Shares offered by the Fund are sold primarily to customers of financial
institutions subject to a front-end sales charge of up to 1.00% and a contingent
deferred sales charge of up to 1.00%. Fortress Shares are distributed pursuant
to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is paid a fee
of up to .25 of 1%, in addition to a shareholder services fee of .25 of 1% of
the Fortress Shares' average daily assets. Investments in Fortress Shares are
subject to a minimum initial investment of $1,500, unless the investment is in a
retirement account, in which case the minimum investment is $50.
The amount of dividends payable to Fortress Shares and Class A Shares will
generally exceed that of Class C Shares by the difference between class expenses
and distribution and shareholder service expenses borne by shares of each
respective class.
The stated advisory fee is the same for all classes of shares.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's Financial Statements and Notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's Financial Statements and Notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
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.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY EQUITY INCOME
FUND, INC.
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062806A-A (5/94)
LIBERTY EQUITY INCOME FUND, INC.
CLASS C SHARES
PROSPECTUS
The Class C Shares of Liberty Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE CLASS C SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS CONTAINS THE INFORMATION YOU SHOULD READ AND KNOW BEFORE YOU
INVEST IN CLASS C SHARES OF THE FUND. KEEP THIS PROSPECTUS FOR FUTURE REFERENCE.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class C Shares, and Fortress Shares dated May 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contract your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS C SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
Liberty Family Retirement Program 4
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 5
Acceptable Investments 5
Convertible Securities 5
Zero Coupon Convertible Securities 6
Temporary Investments 6
Repurchase Agreements 6
When-Issued and Delayed Delivery
Transactions 6
Lending of Portfolio Securities 7
Put and Call Options 7
Financial Futures and Options
on Futures 7
Risks 8
Restricted and Illiquid Securities 8
Foreign Securities 8
High-Yield Corporate Debt Obligations 9
Portfolio Turnover 9
Investment Limitations 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN CLASS C SHARES 10
- ------------------------------------------------------
Share Purchases 10
Through a Financial Institution 10
Directly from the Distributor 11
Minimum Investment Required 11
What Shares Cost 11
Systematic Investment Program 12
Exchanging Securities for Fund Shares 12
Certificates and Confirmations 12
Dividends and Distributions 12
Retirement Plans 12
EXCHANGE PRIVILEGE 13
- ------------------------------------------------------
Requirements for Exchange 13
Tax Consequences 13
Making an Exchange 13
Telephone Instructions 13
REDEEMING CLASS C SHARES 14
- ------------------------------------------------------
Through a Financial Institution 14
Directly from the Fund 14
By Telephone 14
By Mail 15
Signatures 15
Contingent Deferred Sales Charge 15
Systematic Withdrawal Program 16
Accounts with Low Balances 16
FUND INFORMATION 17
- ------------------------------------------------------
Management of the Fund 17
Board of Directors 17
Officers and Directors 17
Investment Adviser 20
Advisory Fees 20
Adviser's Background 20
Distribution of Class C Shares 21
Distribution and Shareholder
Services Plans 21
Other Payments to Financial
Institutions 21
Administration of the Fund 22
Administrative Services 22
Custodian 22
Transfer Agent and Dividend
Disbursing Agent 22
Legal Counsel 22
Independent Auditors 22
Brokerage Transactions 23
SHAREHOLDER INFORMATION 23
- ------------------------------------------------------
Voting Rights 23
TAX INFORMATION 23
- ------------------------------------------------------
Federal Income Tax 23
Pennsylvania Corporate and Personal
Property Taxes 23
PERFORMANCE INFORMATION 24
- ------------------------------------------------------
OTHER CLASSES OF SHARES 24
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS A SHARES 26
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
FORTRESS SHARES 27
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS C SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1).............................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
<CAPTION>
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C>
Management Fee (after waiver) (2)....................................................................... 0.00%
12b-1 Fee............................................................................................... 0.75%
Total Other Expenses (after expense reimbursement)...................................................... 1.04%
Shareholder Services Fee.......................................................................0.25%
Total Class C Shares Operating Expenses (3).................................................... 1.79%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description see "Redeeming
Class C Shares."
(2) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.60%.
(3) The total Class C Shares operating expenses would have been 2.68% absent the
voluntary waiver of the management fee and the voluntary reimbursement of
certain other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS C SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS C SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period....... $ 29 $ 56 $ 97 $ 211
You would pay the following expenses on the same investment, assuming no
redemption............................................................... $ 18 $ 56 $ 97 $ 211
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class C Shares of the Fund. The Fund also offers two additional classes of
shares, Class A Shares and Fortress Shares. Class C Shares, Class A Shares and
Fortress Shares are subject to certain of the same expenses; however, Class A
Shares are subject to a maximum sales load of 4.50% and may be subject to a
12b-1 fee of up to 0.50%, but are not subject to a contingent deferred sales
charge. Fortress shares are subject to a 12b-1 fee of 0.25%, a contingent
deferred sales charge of 1.00% and a maximum sales load of 1.00%. See "Other
Classes of Shares."
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report dated March 31,
1994, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund free of charge.
<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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On December 21, 1992, shareholders of the Fund approved changing the name
of the Fund from Convertible Securities and Income, Inc. to Liberty Equity
Income Fund, Inc. The Fund's address is Liberty Center, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") has established three
classes of shares, known as Class A Shares, Class C Shares, and Fortress Shares.
This prospectus relates only to the Class C Shares ("Shares") of the Fund.
Shares of the Fund are designed primarily for individuals and institutions
seeking high current income and capital appreciation through a professionally
managed, diversified portfolio of convertible securities. A minimum initial
investment of $1,500 is required, unless the investment is in a retirement
account, in which case the minimum initial investment is $50.
Shares are sold at net asset value. A contingent deferred sales charge of 1.00%
will be charged on assets redeemed within the first 12 months following
purchase.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family of Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are the
Class C Shares of:
_ American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
_ Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
_ Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
_ International Equity Fund, providing long-term capital growth and income
through international securities;
_ International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
_ Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
_ Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
_ Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
_ Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
_ Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations; and
_ Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may be
readily made between investment options selected by the employer or plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Capital Growth Fund, Fund for U.S. Government
Securities,Inc., International Equity Fund, International Income Fund, Liberty
High Income Bond Fund, Inc., Liberty Utility Fund, Inc., Prime Cash Series, and
Stock and Bond Fund, Inc.
No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its objectives by
investing at least 65% of its assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks, and securities
(including debt securities) that are convertible into common stocks. The portion
of the Fund's total assets invested in common stocks, preferred stocks, and
convertible securities will vary according to the Fund's assessment of market
and economic conditions and outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Fund
invests in convertible bonds rated "B" or higher by Standard & Poor's
Corporation ("Standard & Poor's") or Moody Investors Service, Inc. ("Moody's")
at the time of investment, or if unrated, of comparable quality. If a
convertible bond is rated below "B" according to the characteristics set forth
hereafter the Fund has purchased it, the Fund is not required to drop the
convertible bond from the portfolio but will consider appropriate action. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the investment
adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed-
income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Fund's adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are debt
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero coupon
convertible securities are convertible into a specific number of shares of the
issuer's common stock. In addition, zero coupon convertible securities usually
have put features that provide the holder with the opportunity to sell the bonds
back to the issuer at a stated price before maturity. Generally, the prices of
zero coupon convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS. The Fund may also invest temporarily, in amounts of 35%
or less of the Fund's assets, in cash and cash items during times of unusual
market conditions to maintain liquidity. Cash items may include short-term the
following obligations:
commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances);
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. The Fund will limit its purchase of
securities on a when-issued or delayed delivery basis to no more than 20% of the
value of its total assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities, on a short-term or a long-term basis, up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Board of Directors and will receive collateral in the form of cash
or U.S. government securities equal to at least 100% of the value of the
securities loaned.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write call options on securities either held in its
portfolio or for which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in interest rates. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, much depends on the ability of the portfolio
manager to predict market conditions based upon certain economic analysis
and factors. There is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the portfolio securities to
market changes. In addition, the Fund's investment adviser could be
incorrect in its expectations about the direction or extent of market
factors such as interest rate movements. In these events, the Fund may lose
money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest up to 10% of its
net assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities
determined by the Directors not to be liquid, non-negotiable time deposits and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
FOREIGN SECURITIES. The Fund reserves the right to invest in foreign securities
which are traded publicly in the United States. Investments in foreign
securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher. The Fund's investment adviser will consider these and
other factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet the Fund's
standards and objectives. The Fund will only purchase securities issued in U.S.
dollar denominations.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the
value of its total assets in corporate debt obligations that are not investment
grade bonds or are not rated but are determined by the Fund's investment adviser
to be of comparable quality. Securities which are rated BBB or lower by Standard
& Poor's or Baa or lower by Moody's either have speculative characteristics or
are speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligations. A description of the rating
categories is contained in the Appendix to the Statement of Additional
Information. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its total assets in
corporate debt obligations that are not investment-grade bonds during the
current fiscal year.
Federated Advisers, the Fund's investment adviser, attempts to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that the Fund may borrow up to one-third
of the value of its total assets and pledge up to 10% of the value of
those assets to secure such borrowings;
sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions;
lend any of its assets except portfolio securities up to one-third of the
value of its total assets; or
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale
of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of
any issuer;
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
commit more than 5% of the value of its total assets to premiums on open
put option positions; or
invest more than 5% of its total assets in warrants.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class C Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class C Shares in the liabilities of the Fund and those attributable to Class C
Shares, and dividing the remainder by the total number of Class C Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class C Shares and Fortress Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution who has a sales agreement with the
distributor, or directly from the distributor, Federated Securities Corp., once
an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Liberty Equity Income Fund, Inc.--Class C
Shares; and
mail both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8604, Boston, MA 02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when the State Street Bank
receives payment by wire. Federal funds should be wired as follows: Federated
Services Company, c/o State Street Bank and Trust Company, Boston, Massachusetts
02105; Attention: Mutual Fund Servicing Division; For Credit to: Liberty Equity
Income Fund, Inc.--Class C Shares; Title or Name of Account; Wire Order Number
and/or Account Number. Shares cannot be purchased by wire on days on which the
New York Stock Exchange is closed and on federal holidays restricting wire
transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class C Shares is $1,500 unless the investment
is in a retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts which must be in amounts of at least $50. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the Fund. A shareholder may apply for participation in this program
through his financial institution or directly through the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain convertible securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. From time to time the Fund will prepare a list of
securities which may be eligible for acceptance and furnish this list to brokers
upon request. Securities accepted by the Fund are valued in the same manner as
the Fund values its portfolio securities. Investors wishing to exchange
securities should first contact their investment broker, who will contact
Federated Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on payment dates at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased after the
record date, those Shares are not entitled to that month's dividend.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
Federated Securities Corp. and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class C shareholders may exchange all or some of their
Shares for Class C Shares of other funds in the Liberty Family of Funds at net
asset value without a contingent deferred sales charge. These exchanges are made
at net asset value plus the difference between the Fund's sales charge already
paid and any sales charge of the fund into which the Shares are to be exchanged,
if higher. Neither the Fund nor any of the funds in the Liberty Family of Funds
imposes any additional fees on exchanges. Participants in a plan under the
Liberty Family Retirement Program may exchange all or some of their Shares for
Class A Shares of other funds offered under the plan at net asset value.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund into which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class C Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts, 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. If the instructions
are given by a
broker, a telephone authorization form completed by the broker must be on file
with the Fund. Shares may be exchanged between two funds by telephone only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts,
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.
REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form. Redemptions
of Shares held through the Liberty Family Retirement Program will be governed by
the requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire-transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire-transfer is
$1,000. If at any time the Fund shall determine it necessary to terminate or
modify these methods of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on these services are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, MA 02266-8604. The written
request should include the shareholder's name, the Fund name and class of shares
name, the account number, and the share or dollar amount requested, and should
be signed exactly as the Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures of all registered owners on written redemption requests
guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares will be charged a contingent deferred sales
charge by Federated Securities Corp. of 1.00% for redemptions of those Shares
made within one year from date of purchase. To the extent that a shareholder
exchanges between or among Class C Shares in other funds in the Liberty Family
of Funds, the time for which the exchanged-for Shares were held will be added,
or "tacked", to the time for which the exchanged-from Shares were held for
purposes of satisfying the one-year holding period. The contingent deferred
sales charge will be calculated based upon the lesser
of the original purchase price of the Shares or the net asset value of the
shares when redeemed. For additional information, see "Other Payments to
Financial Institutions."
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of short-term or long-term
capital gains. Redemptions are deemed to have occurred in the following order:
i) Shares acquired through the reinvestment of dividends and long-term capital
gains, ii) purchases of Shares occurring more than one year before the date of
redemption, iii) purchases of Shares within the previous year.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified retirement plan, other than an IRA, Keogh
Plan, or a custodial account, following retirement; (ii) a total or partial
distribution from an IRA, Keogh Plan, or a custodial account, after the
beneficial owner attains age 59-1/2; or (iii) from the death or disability of
the beneficial owner. The exemption from the contingent deferred sales charge
for qualified plans, an IRA, Keogh Plan, or a custodial account does not extend
to account transfers, rollovers, and other redemptions made for purposes of
reinvestment.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class C Shares in other Liberty Family Funds or Liberty
Family Retirement Program funds, or in connection with redemptions by the Fund
of accounts with low balances. No contingent deferred sales charge will be
imposed on Shares purchased through a bank trust department, an investment
adviser or a retirement plan where the third-party administrator has entered
into certain arrangements with Federated Securities Corp. to the extent that no
payment was advanced to such entities. No contingent deferred sales charge will
be charged for redemptions from the Liberty Family Retirement Program. For
additional information, see "Other Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually use up, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through their financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement accounts, and pay the proceeds
to the shareholder if the account balance falls below the required minimum value
of $1,500. This requirement does not apply, however, if the balance falls below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, Inc., and the Funds (as
defined in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of
J. Christopher Donahue, Vice President and Director of the
Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private
Associates, Inc., Realtors real estate ventures in Southwest Florida; Director,
3255 Tamiami Trail North Trustee, or Managing General Partner of the Funds;
Naples, FL formerly, President, Naples Property Management.
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General
23rd Floor Partner of the Funds; formerly, Vice Chairman and
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp. and Director,
Ryan Homes, Inc.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors Tower and Director Federated Advisers, Federated Management and Federated
Pittsburgh, PA Research; President and Director, Federated Administrative
Services; Trustee, Federated Services Company; President
or Vice President of the Funds; Director, Trustee, or
Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of
the Fund.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund,
571 Hayward Mill Road Inc.; Director, Trustee, or Managing General Partner of
Concord, MA the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street
Bank & Trust Company and State Street Boston Corporation;
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and
University of Pittsburgh U.S. Space Foundation; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Environ-
mental Policy & Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee,
4905 Bayard Street or Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher President Executive Vice President and Trustee, Federated In-
Federated Investors Tower vestors; Chairman and Director, Federated Securities
Pittsburgh, PA Corp.; President or Vice President of the Funds; Director
or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Ad-
Pittsburgh, PA visers, Federated Management, and Federated Research;
Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services
Company; Chairman, Treasurer, and Director, Federated
Administrative Services; Trustee or Director of some of
the Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower Federated Investors; Vice President, Secretary and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice
President and Director, Federated Securities Corp.; Vice
President and Secretary of the Funds.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Exec-
Federated Investors Tower utive Vice President, Federated Securities Corp.; Pres-
Pittsburgh, PA ident and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President of the
Funds; Director, Trustee, or Managing General Partner of
some of the Funds; formerly, Vice President, The Standard
Fire Insurance Company and President of its Federated
Research Division.
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended.
\ Members of the Fund's Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilites of the Board of Directors
between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .60 of 1% of the Fund's average daily net assets. The adviser
may choose to voluntarily waive a portion of its fee or reimburse the Fund
for certain operating expenses. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The adviser has also undertaken
to reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since August of
1991. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 until
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. _Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of
.75 of 1% of the average daily net asset value of Class C Shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class C Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _Federated Securities Corp. will
pay financial institutions an amount equal to 1% of the net asset value of
Shares purchased by their clients or customers at the time of purchase
(except for participants in the Liberty Family Retirement Program).
Financial institutions may elect to waive the initial payment described
above; such waiver will result in the waiver by the Fund of the otherwise
applicable contingent deferred sales charge. Furthermore, the Adviser or
its affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing,
sales and operational support to the distributor. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount
of Shares the dealer sells or may sell, and/or upon the type and nature of
sales or operational support furnished by the dealer.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for shares of the
Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
One Oxford Centre, Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholder vote. All shares of each portfolio or class in
the fund have equal voting rights, except that in matters affecting only a
particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Class C
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class C Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class C Shares is calculated each day by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by Class C Shares over a thirty-day period by the maximum
offering price per share of Class C Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Class C Shares, and therefore, may
not correlate to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class A Shares, Class C
Shares, and Fortress Shares. Because Fortress Shares may be subject to lower
Rule 12b-1 fees, the yield for Class C Shares, and Fortress Shares for the same
period, may exceed that of Class A Shares and Class C. Because Class A Shares
are subject to a higher maximum sales load the total return for Class C Shares
and Fortress Shares for the same period may exceed that of Class A Shares.
Depending on the dollar amount invested and the time period for which any class
of shares is held, the total return for any particular class may exceed that of
another.
From time to time the Fund may advertise the performance of Class A Shares,
Class C Shares and Fortress Shares, using certain financial publications and/or
compare the performance of Class A Shares, Class C Shares and Fortress Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund presently offers Fortress Shares and Class A Shares. Class A Shares
offered by the Fund, are sold to customers of financial institutions subject to
a front-end sales charge of up to 4.50% and certain contingent deferred sales
charges. Class A Shares are distributed pursuant to a Rule 12b-1 Plan adopted by
the Fund whereby the distributor is paid a fee of up to .50 of 1%, and a
shareholder services fee of up to .25 of 1% of the Class A Shares' average daily
assets. Class A Shares are subject to a minimum initial investment of $500,
unless the investment is in a retirement account, in which case the minimum
investment is $50.
Fortress Shares offered by the Fund are sold primarily to customers of financial
institutions subject to a front-end sales charge of up to 1.00% and certain
contingent deferred sales charges. Fortress Shares are distributed pursuant to a
Rule 12b-1 Plan adopted by the Fund whereby the distributor is paid a fee of up
to .25 of 1%, in addition to a shareholder services fee of .25 of 1% of the
Fortress Shares' average daily assets. Investments in Fortress Shares are
subject to a minimum initial investment of $1,500, unless the investment is in a
retirement account, in which case the minimum investment is $50.
The amount of dividends payable to Fortress Shares and Class A Shares will
generally exceed that of Class C Shares by the difference between class expenses
and distribution and shareholder service expenses borne by shares of each
respective class.
The stated advisory fee is the same for all classes of shares.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report dated March 31,
1994, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund free of charge.
<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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994 on the Fund's financial statements for
the year ended March 31, 1994 is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's Financial Statements and Notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY EQUITY INCOME
FUND, INC.
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062806A-C (5/94)
LIBERTY EQUITY INCOME FUND, INC.
FORTRESS SHARES
PROSPECTUS
The Fortress Shares of Liberty Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE FORTRESS SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Fortress Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class C Shares, and Fortress Shares dated May 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--FORTRESS SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
FORTRESS INVESTMENT PROGRAM 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objectives 4
Investment Policies 4
Acceptable Investments 4
Convertible Securities 5
Zero Coupon Convertible Securities 5
Temporary Investments 6
Repurchase Agreements 6
When-Issued and Delayed Delivery
Transactions 6
Lending of Portfolio Securities 6
Put and Call Options 7
Financial Futures and Options
on Futures 7
Risks 7
Restricted and Illiquid Securities 8
Foreign Securities 8
High-Yield Corporate Debt Obligations 8
Portfolio Turnover 9
Investment Limitations 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN FORTRESS SHARES 10
- ------------------------------------------------------
Share Purchases 10
Through a Financial Institution 10
Directly By Mail 11
Directly By Wire 11
Minimum Investment Required 11
What Shares Cost 11
Dealer Concession 12
Eliminating the Sales Charge 12
Quantity Discounts and Accumulated
Purchases 12
Letter of Intent 12
Reinvestment Privilege 13
Concurrent Purchases 13
Systematic Investment Program 13
Exchanging Securities for Fund Shares 13
Exchange Privileges 14
Certificates and Confirmations 14
Dividends and Distributions 14
Capital Gains 14
REDEEMING FORTRESS SHARES 14
- ------------------------------------------------------
Through a Financial Institution 15
Directly By Mail 15
Signatures 15
Receiving Payment 16
Contingent Deferred Sales Charge 16
Systematic Withdrawal Program 17
Accounts with Low Balances 17
Exchanges for Shares of Other Funds 17
FUND INFORMATION 18
- ------------------------------------------------------
Management of the Fund 18
Board of Directors 18
Officers and Directors 18
Investment Adviser 21
Advisory Fees 21
Adviser's Background 21
Distribution of Fortress Shares 22
Distribution and Shareholder
Services Plans 22
Other Payments to Financial
Institutions 22
Administration of the Fund 23
Administrative Services 23
Custodian 23
Transfer Agent and Dividend
Disbursing Agent 23
Legal Counsel 24
Independent Auditors 24
Brokerage Transactions 24
SHAREHOLDER INFORMATION 24
- ------------------------------------------------------
Voting Rights 24
TAX INFORMATION 24
- ------------------------------------------------------
Federal Income Tax 24
Pennsylvania Corporate and Personal
Property Taxes 25
PERFORMANCE INFORMATION 25
- ------------------------------------------------------
OTHER CLASSES OF SHARES 26
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 27
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 28
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--FORTRESS SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................... 1.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1).................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................ None
Exchange Fee.................................................................................. None
<CAPTION>
ANNUAL FORTRESS SHARES OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<S> <C> <C>
Management Fee (after waiver) (2)............................................................. 0.00%
12b-1 Fee..................................................................................... 0.25%
Total Other Expenses (after expense reimbursement)............................................ 1.04%
Shareholder Services Fee.................................................................... 0.25%
Total Fortress Shares Operating Expenses (3).............................................. 1.29%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
four years of their purchase date. For a more complete description see
"Redeeming Fortress Shares."
(2) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.60%.
(3) The total Fortress Shares operating expenses would have been 2.18% absent
the voluntary waiver of the management fee and the voluntary reimbursement
of certain other operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF FORTRESS SHARES OF THE FUND
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN FORTRESS SHARES," "REDEEMING
FORTRESS SHARES," AND "FUND INFORMATION." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period.................................................. $ 33 $ 62
You would pay the following expenses on the same investment, assuming no redemption............ $ 23 $ 50
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Fortress Shares of the Fund. The Fund also offers two additional classes of
shares called Class A Shares and Class C Shares. Fortress Shares, Class A Shares
and Class C Shares are all subject to certain of the same expenses; however,
Class A Shares are subject to a maximum sales load of 4.50% and may be subject
to a 12b-1 fee of up to 0.50% but are not subject to a contingent deferred sales
charge. Class C Shares are subject to a 12b-1 fee of 0.75% and a contingent
deferred sales charge of 1.00%, but are not subject to a sales load. See "Other
Classes of Shares."
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report dated March 31,
1994, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund free of charge.
<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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On December 21, 1992, shareholders of the Fund approved changing the name
of the Fund from Convertible Securities and Income, Inc. to Liberty Equity
Income Fund, Inc. The Fund's address is Liberty Center, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") has established three
classes of shares, known as Fortress Shares, Class A Shares and Class C Shares.
This prospectus relates only to the Fortress Shares ("Shares") of the Fund.
Shares of the Fund are designed primarily for individuals and institutions
seeking high current income and capital appreciation through a professionally
managed, diversified portfolio of convertible securities. A minimum initial
investment of $1,500 is required, unless the investment is in a retirement
account, in which case the minimum initial investment is $50.
Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on Shares, other than shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase date.
FORTRESS INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
This class of shares is a class of Fortress Shares ("Fortress Shares"). It is a
member of a family of funds ("Fortress Funds"), collectively known as the
Fortress Investment Program. The other funds in the Program are:
American Leaders Fund, Inc. (Fortress Shares only), providing growth of
capital and income through high-quality stocks;
California Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax and California personal
income taxes;
Fortress Adjustable Rate U.S. Government Fund, Inc., providing current
income consistent with lower volatility of principal through a diversified
portfolio of adjustable and floating rate mortgage securities which are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
Fortress Bond Fund, providing current income primarily through
high-quality corporate debt;
Fortress Municipal Income Fund, Inc., providing a high level of current
income generally exempt from the federal regular income tax by investing
primarily in a diversified portfolio of municipal bonds;
Fortress Utility Fund, Inc., providing high current income and moderate
capital appreciation primarily through equity and debt securities of
utility companies;
Government Income Securities, Inc., providing current income through
long-term U.S. government securities;
Limited Term Fund (Fortress Shares only), providing a high level of
current income consistent with minimum fluctuation in principal value;
Limited Term Municipal Fund (Fortress Shares only), providing a high level
of current income which is exempt from federal regular income tax
consistent with the preservation of capital;
Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
New York Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax, New York personal income
taxes, and New York City income taxes;
Ohio Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax and Ohio personal income
taxes;
Strategic Income Fund (Fortress Shares only), providing high current
income through investing in domestic corporate debt obligations, U.S.
government securities, and foreign government and corporate debt
obligations; and
_ World Utility Fund (Fortress Shares only), providing total return by
investing primarily in securities issued by domestic and foreign
companies in the utilities industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles, and by providing
the investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund attempts to achieve its objectives by
investing at least 65% of its assets in income-producing equity securities.
Equity securities include common stocks, preferred stocks and securities
(including debt securities) that are convertible into common stocks. The portion
of the
Fund's total assets invested in common stocks, preferred stocks, and convertible
securities will vary according to the Fund's assessment of market and economic
conditions and outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES. Convertible securities are fixed-income securities
which may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The Fund
invests in convertible bonds rated "B" or higher by Standard & Poor's
Corporation, ("Standard & Poor's") or Moody's Investors Service, Inc.
("Moody's") at the time of investment, or if unrated, of comparable quality. If
a convertible bond is rated below "B" according to the characteristics set forth
here after the Fund has purchased it, the Fund is not required to drop the
convertible bond from the portfolio, but will consider appropriate action. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality. The Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stock in instances in which, in the investment
adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Fund's adviser evaluates the investment
characteristics of the convertible security as a fixed-income instrument, and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the Fund's adviser considers numerous factors, including
the economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are debt
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero coupon
convertible securities are convertible into a specific number of shares of the
issuer's common stock. In addition, zero coupon convertible securities usually
have put features that provide the holder with the opportunity to sell the bonds
back to the issuer at a stated price before maturity. Generally, the prices of
zero coupon convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS. The Fund may also invest temporarily, in amounts of 35%
or less of the Fund's assets, in cash and cash items during times of unusual
market conditions to maintain liquidity. Cash items include the following
short-term obligations:
commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and
bankers' acceptances);
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
or other securities to the Fund and agree at the time of sale to repurchase them
at a mutually agreed upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. The Fund will limit its purchase of
securities on a when-issued or delayed delivery basis to no more than 20% of the
value of its total assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities, on a short-term or a long-term basis, up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Board of Directors and will receive collateral in the form of cash
or U.S. government securities equal to at least 100% of the value of the
securities loaned.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. The Fund may also
write call options on all or any portion of its portfolio to generate income for
the Fund. The Fund will write call options on securities either held in its
portfolio or for which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in interest rates. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, much depends on the ability of the portfolio
manager to predict market conditions based upon certain economic analysis
and factors. There is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and
any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these events,
the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures and
options positions depends on this secondary market.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest up to 10% of its
net assets in restricted securities. This restriction is not applicable to
commercial paper issued under Section 4(2) of the Securities Act of 1933.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities
determined by the Directors not to be liquid, non-negotiable time deposits and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
FOREIGN SECURITIES. The Fund reserves the right to invest in foreign securities
which are traded publicly in the United States. Investments in foreign
securities, particularly those of non-governmental issuers, involve
considerations which are not ordinarily associated with investments in domestic
issuers. These considerations include the possibility of expropriation, the
unavailability of financial information or the difficulty of interpreting
financial information prepared under foreign accounting standards, less
liquidity and more volatility in foreign securities markets, the impact of
political, social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more difficult to enforce
contractual obligations abroad than would be the case in the United States
because of differences in the legal systems. Transaction costs in foreign
securities may be higher. The Fund's investment adviser will consider these and
other factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investments will meet the Fund's
standards and objectives. The Fund will only purchase securities issued in U.S.
dollar denominations.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS. The Fund may invest up to 35% of the
value of its total assets in corporate debt obligations that are not investment
grade bonds, or are not rated but are determined by the Fund's investment
adviser to be of comparable quality. Securities which are rated BBB or lower by
Standard & Poor's or Baa or lower by Moody's either have speculative
characteristics or are speculative with respect to capacity to pay interest and
repay principal in accordance with the
terms of the obligations. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information. There is no lower limit
with respect to rating categories for securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its total assets in
corporate debt obligations that are not investment-grade bonds during the
current fiscal year.
Federated Advisers, the Fund's investment adviser, attempts to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except that the Fund may borrow up to one-third
of the value of its total assets and pledge up to 10% of the value of
those assets to secure such borrowings;
sell securities short except, under strict limitations, it may maintain
open short positions so long as not more than 10% of the value of its net
assets is held as collateral for those positions;
lend any of its assets except portfolio securities up to one-third of the
value of its total assets; or
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale
of restricted securities which the Fund may purchase pursuant to its
investment objectives, policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of
any issuer;
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
commit more than 5% of the value of its total assets to premiums on open
put option positions; or
invest more than 5% of its total assets in warrants.
NET ASSET VALUE
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The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Fortress Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Fortress Shares in the liabilities of the Fund and those attributable to
Fortress Shares, and dividing the remainder by the total number of Fortress
Shares outstanding. The net asset value for Fortress Shares may differ from that
of Class A Shares and Class C Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN FORTRESS SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution who has a sales agreement with the
distributor, or directly from the distributor, Federated Securities Corp.,
either by mail or by wire. The Fund reserves the right to reject any purchase
request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial
institutions which do not maintain investor accounts on a fully disclosed basis
and do not account for share ownership periods (see "Other Payments to Financial
Institutions").
DIRECTLY BY MAIL. To purchase Shares by mail directly from Federated Securities
Corp.:
complete and sign the new account form available from the Fund;
enclose a check made payable to Liberty Equity Income Fund, Inc.--Fortress
Shares; and
mail both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8604, Boston, MA 02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
DIRECTLY BY WIRE. To purchase Shares directly from Federated Securities Corp.
by Federal Reserve wire, call the Fund. All information needed will be taken
over the telephone, and the order is considered received when the Fund receives
payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500, except for an IRA account,
which requires a minimum initial investment of $50. Subsequent investments must
be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales charge for purchases of $1 million or
more. In addition, no sales charge is imposed for Shares purchased through bank
trust departments or investment advisers registered under the Investment
Advisers Act of 1940 purchasing on behalf of their clients, or by sales
representatives, Directors, and employees of the Fund, Federated Advisers, and
Federated Securities Corp., or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp., their spouses and
children under age 21, or any trusts or pension or profit-sharing plans for
these persons. Unaffiliated institutions through whom Shares are purchased may
charge fees for services provided which may be related to the ownership of Fund
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the institution with regard to services provided, the
fees charged for these services, and any restrictions and limitations imposed.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgving Day, and Christmas Day.
Under certain circumstances, described under "Redeeming Fortress Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
DEALER CONCESSION. For sales of Shares, broker/dealers will normally receive
100% of the applicable sales charge. Any portion of the sales charge which is
not paid to a broker/dealer will be retained by the distributor. However, from
time to time, and at the sole discretion of the distributor, all or a part of
that portion may be paid to a dealer. The sales charge for Shares sold other
than through registered broker/dealers will be retained by Federated Securities
Corp. Federated Securities Corp. may pay fees to banks out of the sales charge
in exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of Shares.
ELIMINATING THE SALES CHARGE
The sales charge can be eliminated on the purchase of Shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. There is no sales charge for
purchases of $1 million or more. The Fund will combine purchases made on the
same day by the investor, his spouse, and his children under age 21 when it
calculates the sales charge.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $900,000 and he
purchases $100,000 more at the current public offering price, there will be no
charge on the additional purchase. The Fund will also combine purchases for the
purpose of reducing the contingent deferred sales charge imposed on some Share
redemptions. For example, if a shareholder already owns Shares having current
value at public offering price of $1 million and purchases an additional $1
million at the current public offering price, the applicable contingent deferred
sales charge would be reduced to .50% of those additional Shares. For more
information on the levels of redemption fees and holding periods, see the
section entitled "Contingent Deferred Sales Charge."
To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by his financial institution at the time the purchase is made that
Shares are already owned or that purchases are being combined. The Fund will
eliminate the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $1 million of
Shares over the next 13 months, the sales charge may be reduced by signing a
letter of intent to that effect. This letter of intent includes a provision for
a sales charge elimination depending on the amount actually purchased within the
13-month period and a provision for the Fund's custodian to hold 1.00% of the
total amount intended to be purchased in escrow (in Shares) until such purchase
is completed.
The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more Shares, is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the 1.00% sales charge.
This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."
This letter of intent will not obligate the shareholder to purchase Shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales load on such purchases
will not be adjusted to reflect a lower sales load).
REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the next
determined net asset value without any sales charge. Federated Securities Corp.
must be notified by the shareholder in writing or by his financial institution
of the reinvestment in order to receive this elimination of the sales charge. If
the shareholder redeems his Shares, there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
eliminations, a shareholder has the privilege of combining concurrent purchases
of two or more funds in the Fortress Investment Program, the purchase price of
which includes a sales charge. For example, if a shareholder concurrently
invested $400,000 in one of the other Fortress Funds, and $600,000 in Shares,
the sales charge would be eliminated.
To receive this sales charge elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund plus
the 1.00% sales charge for purchases under $1 million. A shareholder may apply
for participation in this program through Federated Securities Corp. or his
financial institution.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain convertible securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. From time to time the Fund will prepare a list of
securities which may be eligible for acceptance and furnish this list to brokers
upon request. Securities accepted by the Fund are valued in the same manner as
the Fund values its portfolio securities. Investors wishing to exchange
securities should first contact their investment broker, who will contact
Federated Securities Corp.
EXCHANGE PRIVILEGES
Shares in other Fortress Funds may be exchanged for Shares at net asset value
without a sales charge (if previously paid) or a contingent deferred sales
charge. The exchange privilege is available to shareholders residing in any
state in which the shares being acquired may be legally sold.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares at net asset
value (plus a sales charge, if applicable). Shareholders using this privilege
must exchange Shares having a net asset value of at least $1,500. Shareholders
who desire to automatically exchange Shares of a predetermined amount on a
monthly, quarterly, or annual basis may take advantage of a systematic exchange
privilege. Further information on these exchange privileges is available by
calling Federated Securities Corp. or the shareholder's financial institution.
Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Dividends and distributions are
automatically reinvested in additional Shares on payment dates at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased after the
record date, those Shares are not entitled to that month's dividend.
CAPITAL GAINS
Net long-term gains realized by the Fund, if any, will be distributed at least
once every twelve months.
REDEEMING FORTRESS SHARES
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The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
through a financial institution or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Directly by Mail", should be considered.
DIRECTLY BY MAIL
Shareholders may also redeem Shares by sending a written request to Federated
Services Company,
c/o State Street Bank, P.O. Box 8604, Boston, MA 02266-8604. This written
request must include the shareholder's name, the Fund name and class of shares,
the account number, and the share or dollar amount to be redeemed. Shares will
be redeemed at their net asset value next determined after the Fund receives the
redemption request.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures of all registered owners on written redemption requests
guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. A check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper written
redemption request, provided State Street Bank has collected payment for Shares
from the shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from their Fund accounts within certain time
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
AMOUNT OF PURCHASE SHARES HELD CONTINGENT DEFERRED SALES CHARGE
<S> <C> <C>
Up to $1,999,999....................... less than 4 years 1%
$2,000,000 to $4,999,999............... less than 2 years .50%
$5,000,000 or more..................... less than 1 year .25%
</TABLE>
To the extent that a shareholder exchanges between or among Fortress Shares in
other funds in the Fortress Investment Program, the time for which the
exchanged-for Shares were held will be added, or "tacked", to the time for which
the exchanged-from Shares were held for purposes of satisfying the one-year
holding period.
In instances in which Shares have been acquired in exchange for shares in other
Fortress Funds, (i) the purchase price is the price of the Shares when
originally purchased and (ii) the time period during which the Shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on Shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with Shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: 1) first of Shares acquired through the reinvestment of dividends and
long-term capital gains, 2) second of purchases of Shares occurring prior to the
number of years necessary to satisfy the applicable holding period, and 3)
finally of purchases of Shares occurring within the current holding period. For
accounts with Shares subject to multiple Share holding periods, the redemption
sequence will be determined first, with reinvested dividends and long-term
capital gains, and second, on a first-in, first-out basis.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan, or a custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Contingent deferred sales charges are not charged in connection with exchanges
of Shares for shares in other Fortress
Funds, or in connection with redemptions by the Fund of accounts with low
balances. Shares of the Fund originally purchased through a bank trust
department or investment adviser registered under the Investment Advisers Act of
1940, as amended, and third-party administrators acting on behalf of deferred
contribution plans, are not subject to the contingent deferred sales charge, to
the extent that no payment was advanced for purchases made by such entities. For
more information, see "Other Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund. For this reason, payments under this program should not be considered
as yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have invested at least
$10,000 (at current offering price).
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge, it is
not advisable for shareholders to be purchasing Shares while participating in
this program.
A contingent deferred sales charge is charged for Shares redeemed through this
program within four years of their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
EXCHANGES FOR SHARES OF OTHER FUNDS
Shares may be exchanged for shares in other Fortress Funds at net asset value
without a contingent deferred sales charge or a sales charge.
Shares may also be exchanged for shares in other Federated Funds which are
advised by subsidiaries or affiliates of Federated Investors. With the exception
of exchanges into other Fortress Funds, such exchanges will be subject to a
contingent deferred sales charge and possibly a sales charge.
Shareholders using this privilege must exchange shares having a net asset value
which at least meets the minimum investment required for the fund into which the
exchange is being made. A shareholder may obtain information on the exchange
privilege, and may obtain prospectuses for other Fortress Funds and Federated
Funds by calling Federated Securities Corp. or his financial institution.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Adviser, Federated Management and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee,
or Managing General Partner of the Funds; formerly,
Director, The Standard First Insurance Company. Mr. Don-
ahue is the father of J. Christopher Donahue, Vice
President and Director of the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice President, John R. Wood and Associates, Inc.,
Department Realtors; President, Northgate Village Development
John R. Wood and Corporation; General Partner or Trustee in private real
Associates, Inc., Realtors estate ventures in Southwest Florida; Director, Trustee,
3255 Tamiami Trail North or Managing General Partner of the Funds; formerly,
Naples, FL President, Naples Property Management, Inc.
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Bank Plaza-- Baker, Inc.; Director, Trustee, or Managing General
23rd Floor Partner of the Funds; formerly Vice Chairman and
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors Tower and Director Federated Advisers, Federated Management and Federated
Pittsburgh, PA Research; President and Director, Federated
Administrative Services; Trustee, Federated Services
Company; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some
of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Fund.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund,
571 Hayward Mill Road Inc.; Director, Trustee, or Managing General Partner of
Concord, MA the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian
3471 Fifth Avenue and Montefiore Hospitals; Clinical Professor of Medicine
Suite 1111 and Trustee, University of Pittsburgh; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director Trustee, or Managing General
Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street
Bank & Trust Company and State Street Boston
Corporation; Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace,
Learning RAND Corporation, Online Computer Library Center, Inc.,
University of Pittsburgh and U.S. Space Foundation; Chairman, Czecho Slovak
Pittsburgh, PA Management Center; Director, Trustee, or Managing Gen-
eral Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy & Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director,
4905 Bayard Street Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher President Executive Vice President and Trustee, Federated
Federated Investors Tower Investors; Chairman and Director, Federated Securities
Pittsburgh, PA Corp.; President or Vice President of the Funds;
Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated
Federated Investors Tower and Treasurer Investors; Vice President and Treasurer, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research;
Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services
Company; Chairman, Treasurer, and Director, Federated
Administrative Services; Trustee or Director of some of
the Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice
President and Director, Federated Securities Corp.; Vice
President and Secretary of the Funds.
</TABLE>
<TABLE>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors;
Federated Investors Tower Executive Vice President, Federated Securities Corp.;
Pittsburgh, PA President and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President of
the Funds; Director, Trustee, or Managing General
Partner of some of the Funds; formerly, Vice President,
The Standard Fire Insurance Company and President of its
Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended.
\Members of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .60 of 1% of the Fund's average daily net assets. The adviser
may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The adviser has also undertaken to
reimburse the Fund for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record
of competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since August
1991. Mr. Wiles joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since 1992. Mr. Wiles served as
Assistant Vice President of the Fund's investment adviser from 1990 to
1992. Mr. Wiles was a portfolio manager at Mellon Bank from 1986 until
1990. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in
Finance from Cleveland State University.
DISTRIBUTION OF FORTRESS SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. _Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of
.25 of 1% of the average daily net asset value of Fortress Shares to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers. The Fund is not currently making payments under the Distribution
Plan, nor does it anticipate doing so in the immediate future.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Fortress Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _The Distributor will pay financial
institutions, for distribution and/or administrative services, an amount equal
to 1.00% of the offering price of the Shares acquired by their clients or
customers on purchases up to $1,999,999, .50% of the offering price on purchases
of $2,000,000 to $4,999,999, and .25% of the offering price on purchases of
$5,000,000 or
more. (This fee is in addition to the 1.00% sales load on purchases of less that
$1 million.) The financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
Furthermore, the Advisor or its affiliates may offer to pay a fee from their own
assets to financial institutions as financial assistance for providing
substantial marketing, sales and operational support to the Distributor. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of Shares the dealer sells or may sell, and/or upon
the type and nature of sales or operational support furnished by the dealer.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for shares of the
Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
One Oxford Centre, Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital
gains, if any, will be taxable to shareholders as long-term capital gains no
matter how long the shareholders have held the Shares. No federal income tax is
due on any dividends earned in an IRA or qualified retirement plan until
distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Fortress
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Fortress Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Fortress Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
Fortress Shares over a thirty-day period by the maximum offering price per share
of Fortress Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Fortress Shares, and therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class A Shares, Class C
Shares, and Fortress Shares. Because Fortress Shares may be subject to lower
Rule 12b-1 fees, the yield for Class A Shares, and Fortress Shares for the same
period, may exceed that of Class A and Class C Shares. Because Class A Shares
are subject to a higher maximum sales load the total return for Class C Shares
and Fortress Shares for the same period will exceed that of Class A Shares.
Depending on the dollar amount invested and the time period for which any class
of shares is held, the total return for any particular class may exceed that of
another.
From time to time the Fund may advertise the performance of Class A Shares,
Class C Shares and Fortress Shares, using certain financial publications and/or
compare the performance of Class A Shares, Class C Shares and Fortress Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund presently offers Class A Shares and Class C Shares. Class A Shares
offered by the Fund, are sold to customers of financial institutions subject to
a front-end sales charge of up to 4.50% and certain contingent deferred sales
charges. Class A Shares are distributed pursuant to a Rule 12b-1 Plan adopted by
the Fund whereby the distributor is paid a fee of up to .50 of 1%, and a
Shareholder Service Plan fee of .25 of 1% of the Class A Shares' average daily
net assets. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in which
case the minimum investment is $50. Class C Shares offered by the Fund, are sold
primarily to customers of financial institutions at net asset value with no
initial sales charge. Class C Shares are subject to a contingent deferred sales
charge of 1.00%. Class C Shares are distributed pursuant to Rule 12b-1 Plan
adopted by the Fund whereby the distributor is paid a fee of up to .75 of 1%, in
addition to a shareholder services fee of .25 of 1% of the Class C Shares'
average daily net assets. Investments in Class C Shares are subject to a minimum
initial investment of $1,500, unless the investment is in a retirement account,
in which case the minimum investment is $50.
The amount of dividends payable to Fortress Shares and Class A Shares will
generally exceed that of Class C Shares by the difference between class expenses
and distribution and shareholder service expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report dated March 31,
1994, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund free of charge.
<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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY EQUITY INCOME FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated May 6, 1994, on the Fund's financial statements for
the year ended March 31, 1994, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's Financial Statements and Notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
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 ratio's shown above.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
LIBERTY EQUITY INCOME
FUND, INC.
FORTRESS SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062806A-FS (5/94)
LIBERTY EQUITY INCOME FUND, INC.
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectuses of Class A Shares, Class C Shares and
Fortress Shares of Liberty Equity Income Fund, Inc. (the "Fund") dated
May 31, 1994. This Statement is not a prospectus itself. To receive a
copy of any of the prospectuses, write or call the Fund.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES 1
- ---------------------------------------------------------------
Convertible Securities 1
Temporary Investments 1
Warrants 2
When-Issued and Delayed Delivery
Transactions 2
Repurchase Agreements 2
Futures and Options Transactions 2
Restricted and Illiquid Securities 4
Lending of Portfolio Securities 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
Investment Limitations 5
THE FUNDS 7
- ---------------------------------------------------------------
Fund Ownership 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 8
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
(FORTRESS SHARES ONLY) 8
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Distribution of Shares 9
Distribution Plan (Class C and Fortress Shares
only) and Shareholder Services Plans 9
Purchases by Sales Representatives,
Fund Directors, and Employees 9
Exchanging Securities for Fund Shares 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------------
Determining Market Value of Securities 10
EXCHANGE PRIVILEGE (FORTRESS SHARES ONLY) 11
- ---------------------------------------------------------------
Reduced Sales Charge 11
Requirements for Exchange 11
Tax Consequences 11
Making an Exchange 11
REDEEMING SHARES 11
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 12
- ---------------------------------------------------------------
The Fund's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
Current Distributions 13
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 14
- ---------------------------------------------------------------
APPENDIX 15
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. It is qualified to do business as a foreign corporation in Pennsylvania.
On December 21, 1992, shareholders of the Fund approved changing the name of the
Fund from Convertible Securities and Income, Inc. to Liberty Equity Income
Fund, Inc.
Shares of the Fund are offered in three classes known as Class A Shares, Class C
Shares and Fortress Shares (individually and collectively referred to as
"Shares" as the context may require). The Fund does not presently offer Class B
Shares. This Combined Statement of Additional Information relates to all three
classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide above average income and capital
appreciation. The investment objective cannot be changed without approval of
shareholders.
CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the level of interest
rates. As the level of interest rates increases, the market value of convertible
securities may decline and, conversely, as interest rates decline, the market
value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the underlying common stock increases. However, since securities
prices fluctuate, there can be no assurance of capital appreciation, and most
convertible securities will not reflect quite as much capital appreciation as
their underlying common stocks. When the underlying common stock is experiencing
a decline, the value of the convertible security tends to decline to a level
approximating the yield-to-maturity basis of straight nonconvertible debt of
similar quality, often called "investment value", and may not experience the
same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. If this appreciation potential is not realized, the
premium may not be recovered.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are not
limited to:
commercial paper rated A-1 or A-2 by Standard & Poor's Corporation, Prime-1 or
Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by Fitch Investors
Service and Europaper rated A-1, A-2, Prime-1, or Prime-2. In the case where
commercial paper or Europaper has received different ratings from different
rating services, such commercial paper or Europaper is an acceptable temporary
investment so long as at least one rating is one of the preceding high quality
ratings and provided the investment adviser has determined that such investment
presents minimal credit risks;
instruments of domestic and foreign banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is insured by the Federal Deposit Insurance
Corporation. These instruments may include Eurodollar Certificates of Deposits
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and Eurodollar Time
Deposits ("ETDs");
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments which are not rated but are determined by the
investment adviser to be of comparable quality to the other temporary
obligations in which the Fund may invest.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these
risks include international economic and political developments, foreign
governmental restrictions that may adversely affect the payment of
principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the
issuing entity, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments,
or their domestic or foreign branches, are not necessarily subject to the
same regulatory requirements that apply to domestic banks, such as
reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public
availability of information. These factors will be carefully considered
by the Fund's adviser in selecting investments for the Fund.
WARRANTS
Warrants basically are options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, warrants
have expiration dates after which they are worthless. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage increase
or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks 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.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
In the fixed-income securities market, price moves inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed-income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed-income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the option
(for a price less than the strike price of the option) and exercise the option.
The Fund would then deliver the futures contract in return for payment of the
strike price. If the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the premium paid
for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against
an increase in market interest rates. When the Fund writes a call option
on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of futures
to go down, the Fund's obligation under a call option on a future (to
sell a futures contract) costs less to fulfill, causing the value of the
Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will
mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either
on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Board of Directors to determine the liquidity of certain
restricted securities is permitted under an SEC Staff position set forth in the
adapting release for Rule 144A under the Securities Act of 1933 (the "Rule").
The Rule is a non-exclusive, safe harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
The Rule was expected to further enhance the liquidity of the secondary market
for securities eligible or resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) for determination of
the Fund's Board. The Board considers the following criteria in determining the
liquidity of certain restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund may experience greater portfolio turnover than would be expected with a
portfolio of higher-rated securities. A high portfolio turnover will result in
increased transaction costs to the Fund.
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended March 31, 1994 and
1993, the portfolio turnover rates were 43% and 79%, respectively.
INVESTMENT LIMITATIONS
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as are necessary for clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
SELLING SHORT
The Fund will not sell securities short unless during the time the short
position is open, it owns an equal amount of the securities sold or
securities readily and freely convertible into or exchangeable, without
payment of additional consideration, for securities of the same issue as,
and equal in amount to, the securities sold short; and not more than 10%
of the Fund's net assets (taken at current value) is held as collateral
for such sales at any one time.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any borrowings are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing. Margin
deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge.
INVESTING IN MINERALS OR REAL ESTATE
The Fund will not invest in oil, gas, or other mineral exploration or
development programs, or real estate, except that it may purchase
portfolio instruments issued by companies that invest in or sponsor such
interests.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under federal securities law (except
for commercial paper issued under Section 4(2) of the Securities Act of
1933). (However, to comply with the investment policy of a particular
state, the Fund will, as a nonfundamental investment policy, limit its
investment in restricted securities to 5% of its total assets.)
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and
limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes, certificates
of indebtedness or other debt securities of an issuer, repurchase
agreements, or other transactions which are permitted by the Fund's
investment objectives and policies.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase portfolio instruments if, as a result of such
purchase, 25% or more of the value of its total assets would be invested
in any one industry.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of the value of its total assets in
securities of one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations) or acquire more than 10% of
any class of voting securities of any issuer. For these purposes, the
Fund takes all common stock and all preferred stock of an issuer each as
a single class, regardless of priorities, series, designations, or other
differences. For purposes of its policies and limitations, the Fund
considers certificates of deposit and demand and time deposits issued by
a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
portfolio instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
ARBITRAGE TRANSACTIONS
The Fund will not engage in arbitrage transactions.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund may purchase up to
10% of the voting securities of any one issuer and may exercise its
voting powers consistent with the best interests of the Fund. In
addition, the Fund, other companies advised by the Fund's investment
adviser, and other affiliated companies may together buy and hold
substantial amounts of voting stock of a company and may vote together in
regard to such company's affairs. In some cases, the Fund and its
affiliates might collectively be considered to be in control of such
company. In some cases, Directors and other persons associated with the
Fund and its affiliates might possibly become directors of companies in
which the Fund holds stock.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
WRITING COVERED CALL OPTIONS AND PURCHASING PUT OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. The Fund will not purchase put options
on securities unless the securities are held in the Fund's portfolio. The
Fund will not commit more than 5% of the value of its total assets to
premiums on open put option positions.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its total assets in warrants. No
more than 2% of this 5% may be warrants which are not listed on the New
York or American Stock Exchange.
ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities, including certain restricted securities (except for Section
4(2) commercial paper and restricted securities which the adviser
believes can be sold within seven days), non-negotiable time deposits in
repurchase agreements providing for settlement in more than seven days
after notice.
In addition, in order to comply with certain state restrictions, the Fund
will not invest in real estate limited partnerships or oil, gas, or other
mineral leases.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Fund did not borrow money, invest in reverse repurchase agreements,
pledge securities, or sell securities short in excess of 5% of the value
of its total assets during the last fiscal year and has no present
intention to do so in the curent fiscal year.
THE FUNDS
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"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series; Cash Trust Series II; Cash Trust Series, Inc.; D.G. Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Trust; Federated
Income Securities Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securites Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; Short-Term Municipal Trust; Signet
Select Funds; The Shawmut Funds; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment Series,
Inc.
FUND OWNERSHIP
As of May 9, 1994, the following shareholders of record owned 5% or more of the
outstanding Shares of the Fund: Merrill Lynch Pierce Fenner & Smith (as record
owner holding Shares for its clients), Jacksonville, Florida, owned
approximately 1,357,367 (16.82%) Class A Shares, approximately 1,254,661
(52.65%) Class C Shares, and approximately 619,366 (28.20%) Fortress Shares.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue is Chairman and Trustee of
Federated Advisers, Chairman and Trustee, Federated Investors, and Chairman and
Director of the Fund. John A. Staley, IV, is President and Trustee of Federated
Advisers, Vice President and Trustee, Federated Investors, Executive Vice
President, Federated Securities Corp., and Vice President of the Fund. J.
Christopher Donahue is Trustee of Federated Advisers, President and Trustee,
Federated Investors, President and Director, Federated Administrative Services,
Trustee, Federated Services Company, and Vice President and Director of the
Fund. John W. McGonigle is Vice President, Secretary and Trustee of Federated
Advisers, Trustee, Vice President, Secretary and General Counsel, Federated
Investors, Executive Vice President, Secretary and Director, Federated
Administrative Services, Executive Vice President and Director, Federated
Securities Corp., Trustee, Federated Services Company, and Vice President and
Secretary of the Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended March
31, 1994, 1993, and 1992, the Fund's adviser earned $398,315, $157,855, and
$136,400, respectively, all of which was voluntarily waived because of
undertakings to limit the Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1.5% per year
of the remaining average net assets, the adviser will reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
(FORTRESS SHARES ONLY)
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The administrative services for which the Distributor will pay financial
institutions include, but are not limited to, providing office space, equipment,
telephone facilities, and various clerical, supervisory and computer personnel,
as is necessary or beneficial to establish and maintain shareholders' accounts
and records, process purchase and redemption transactions, process automatic
investments of client account cash balances, answer routine client inquiries
regarding the Fund, assist clients in changing dividend options, account
designations, and addresses, and providing such other services as the Fund may
reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as the "Administrators".) For the fiscal
year ended March 31, 1994, the Administrators collectively earned $308,878. For
the fiscal years ended March 31, 1993, and 1992, Federated Administrative
Services, Inc., earned $213,672, and $193,049, respectively. John A. Staley, IV,
an officer of the Fund, and Dr. Henry J. Gailliot, an officer of Federated
Advisers, the adviser to the Fund, each hold approximately 15% and 20%,
respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
During the fiscal years ended March 31, 1994, 1993, and 1992, the Fund paid
total brokerage commissions of $125,372, $36,022, and $26,462, respectively.
PURCHASING SHARES
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Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares and Fortress
Shares only) on days the New York Stock Exchange is open for business. The
procedure for purchasing shares of the Fund is explained in the respective
prospectus under "Investing in Class A Shares," "Investing in Class C Shares,"
and "Investing in Fortress Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
For the fiscal years ended March 31, 1994, 1993, and 1992, the distributor was
paid $1,179,335, $253,028, and $239,749, respectively. During the same periods,
the distributor retained $29,487, $10,145, and $27,731, respectively, after
dealer concessions.
DISTRIBUTION PLAN (CLASS C AND FORTRESS SHARES ONLY) AND SHAREHOLDER SERVICES
PLANS
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Board of Directors expects that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's objectives,
and properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholder's requests and inquiries concerning their accounts.
During the fiscal years ended March 31, 1994, 1993, and 1992, payments in the
amount of $85,071, $50,224, and $54,773, respectively, were made pursuant to the
Distribution Plan, all of which was paid to financial institutions. In addition,
for the fiscal year ended March 31, 1994, payments in the amount of $137,050
were made pursuant to the Shareholder Services Plan.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated Advisers,
and Federated Securities Corp. or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp., and their spouses and
children under 21, may buy Shares at net asset value without a sales charge.
Shares may also be sold without a sales charge to trusts or pension or
profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for Shares, or
they may exchange a combination of convertible securities and cash for Shares.
Any securities to be exchanged must meet the investment objective and policies
of the Fund, must have a readily ascertainable market value, must be liquid, and
must not be subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for acceptance and
furnish this list to brokers upon request. The Fund reserves the right to reject
any security, even though it appears on the list, and the right to amend the
list of acceptable securities at any time without notice to brokers or
investors.
An investment broker acting for an investor should forward the securities in
negotiable form with an authorized letter of transmittal to Federated Securities
Corp. Federated Securities Corp. will determine that transmittal papers are in
good order and forward to the Fund's custodian, Federated Services Company. The
Fund will notify the broker of its acceptance and valuation of the securities
within five business days of their receipt by Federated Services Company.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net asset
value of Shares on the day the securities are valued. One Share will be issued
for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus. Net asset value will not
be calculated on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
according to the last sale price on a national securities exchange, if
available, or on the basis of prices provided by an independent pricing
service;
for most short-term obligations, according to the average of the last offer to
buy and the last offer to sell the security, as provided by independent pricing
services;
for options traded in the over-the-counter market, according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option;
for short-term obligations with remaining maturities of 60 days or less, at the
time of purchase at amortized cost; or
at fair value as determined in good faith by the Fund's Board of Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
yield;
quality;
coupon rate;
maturity;
type of issue;
trading characteristics; and
other market data.
EXCHANGE PRIVILEGE (FORTRESS SHARES ONLY)
- --------------------------------------------------------------------------------
This section relates only to Fortress Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares and Class C Shares of the
Fund, please see the respective prospectuses for these classes of Shares.
The Securities and Exchange Commission has issued an order exempting the Fund
from certain provisions of the Investment Company Act of 1940. As a result, Fund
shareholders are allowed to exchange all or some of their shares for shares in
other Fortress Funds or certain Federated Funds which are sold with a sales
charge different from that of the Fund or with no sales charge and which are
advised by subsidiaries or affiliates of Federated Investors. These exchanges
are made at net asset value plus the difference between the Fund's sales charge
already paid and any sales charge of the fund into which the shares are to be
exchanged, if higher.
The order also allows certain other funds, including funds that are not advised
by subsidiaries or affiliates of Federated Investors, which do not have a sales
charge, to exchange their shares for Fund shares on a basis other than their
current offering price. These exchanges may be made to the extent that such
shares were acquired in a prior exchange, at net asset value, for shares of a
Federated fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for Fortress
Funds or certain Federated funds are available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short-term or long-term capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain Federated funds may be
given in writing or by telephone. Written instructions may require a signature
guarantee.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with
the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund.
Shares may be exchanged between two funds by telephone only if the two
funds have identical shareholder registrations.
Telephoned exchange instructions may be recorded and will be binding upon
the shareholder. They must be received by the Fund before 4:00 p.m.
(Eastern time) for shares to be exchanged that day. If reasonable
procedures are not followed by the Fund, it may be liable for losses due
to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to a
contingent deffered sales charge. Redemption procedures are explained in the
respective prospectuses under "Redeeming Class A Shares," "Redeeming Class C
Shares" or "Redeeming Fortress Shares." Although the transfer agent does not
charge for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Fortress Shares redeemed within one to four years of purchase may be subject to
a contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institutions for services rendered,
and the length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount
less than the other payments to financial institutions fee that is stated in the
prospectus for servicing a particular shareholder, the contingent deferred sales
charge and/or holding period for that particular shareholder will be reduced
accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the Board
of Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any shareholder
in cash up to the lesser of $250,000 of 1% of the Fund's net asset value during
any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on securities held
to maturity. Sales would generally be made because of:
the availability of higher relative yields;
differentials in market values;
new investment opportunities;
changes in creditworthiness of an issuer; or
an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares. Any loss by a shareholder on Fund
shares held for less than six months and sold after a capital gains
distribution will be treated as a long-term capital loss to the extent of
the capital gains distribution.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total returns for Class A Shares for the one-year and
five-year periods ended March 31, 1994 were 0.58% and 8.87%, respectively.
The Fund's cumulative total return for Fortress Shares for the period from
November 12, 1993 (date of initial public offering) to March 31, 1994 was
(6.34%).
The Fund's cumulative total return for Class C Shares for the period from May 3,
1993 (date of initial public offering) to March 31, 1994 was 4.61%.
The average annual total return for all classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable sales
load, adjusted over the period by any additional shares, assuming a quarterly
reinvestment of all dividends and distributions.
Cumulative total return reflects the Fortress shares and Class C shares total
performance over a specific period of time. This total return assumes and is
reduced by the payment of the maximum sales load, if applicable. The Fortress
Shares' total return is representative of only five months of investment
activity since the date of initial public offering. The Class C shares total
return is representative of only eleven months of investment activity since the
date of initial public offering.
YIELD
- --------------------------------------------------------------------------------
The Fund's yields for Class A Shares, Fortress Shares, and Class C Shares were
3.47%, 3.36%, and 2.90%, respectively, for the thirty-day period ended March 31,
1994.
The yield for all classes of shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by any class of
Shares over a thirty-day period by the maximum offering price per share of any
class on the last day of the period. This value is then annualized using
semi-annual compounding. This means that the amount of income generated during
the thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by any class because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
CURRENT DISTRIBUTIONS
Class A Shares, Fortress Shares, and Class C Shares average net annualized
current distributions rate for the thirty days ended March 31, 1994 was 3.29%,
3.15%, and 2.72%, respectively.
Each class of shares calculates its current distributions daily based upon its
past twelve, five, and eleven months' income dividends and short-term capital
gains distributions per share divided by its offering price per share on that
day. Each class of shares may reduce the time period upon which it bases its
calculation of current distributions if the investment adviser believes a
shortened period would be more representative in light of current market
conditions.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance of each class of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's or a class of Shares' expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per Share fluctuate daily. Both net earnings and net asset
value per Share are factors in the computation of yield and total return.
The Fund may compare the performance of equity income funds to other types of
stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. --ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the convertible
securities and fixed income funds categories in advertising and sales
literature.
DOW JONES INDUSTRIAL AVERAGE ("DJIA")--represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of industries.
Because it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS--a composite
index of common stocks in industry, transportation, and financial and public
utility companies, compares total returns of funds whose portfolios are invested
primarily in common stocks. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on its index. Taxes due on
any of these distributions are not included, nor are brokerage or other fees
calculated, in the Standard & Poor's figures.
MORNINGSTAR, INC.--an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
In addition, the Fund will, from time to time, use the following standard
convertible securities indices against which it will compare its performance:
Goldman Sachs Convertible 100; Kidder Peabody Convertible Bond Index; and Value
Line Convertible Bond Index.
FINANCIAL STATEMENTS
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The financial statements for the fiscal year ended March 31, 1994 are
incorporated herein by reference to the annual report of the Fund dated March
31, 1994 (File Nos. 33-6901 and 811-4743). A copy of the report may be obtained
without charge by contacting the Fund.
APPENDIX
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STANDARD & POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in
this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
'A-1.'
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC, SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
'F-1+'.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment.
8062806B (5/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (incorporated into the
Prospectus by reference to Registrant's Annual
Report dated May 31, 1994.)
(b) Exhibits:
(1) Copy of Articles of Incorporation of the
Registrant as amended (2.);
(2) (i)Copy of By-Laws of the Registrant
as Restated and Amended (3.);
(ii) Copy of Amendment to By-Laws
effective August 28, 1987 (4.);
(iii) Copy of Amendment to By-Laws
effective November 19, 1987 (4.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant (1.);
(5) Copy of Investment Advisory Contract of the
Registrant (5.);
(6) (i)Conformed copy of Distributor's
Contract of the Registrant;+
(ii) Conformed Copy of Shareholder
Services Plan;+
(iii) Proposed Form of Shareholder
Services Agreement (7.);
(7) Not applicable;
(8) (i)Conformed copy of Custodian Agreement of
the Registrant (7.);
(ii) Conformed copy of Transfer Agency
Service Agreement of the Registrant;+
(9) Not applicable
(10) Not applicable;
(11) Conformed copy of Consent of Independent
Auditors;+
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 on Form N-1A filed September 9,
1986. (File Nos. 33-6901 and 811-4743)
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 2 on Form N-1A filed December 15,
1986. (File Nos. 33-6901 and 811-4743)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 2 on Form N-1A filed May 18, 1988.
(File Nos. 33-6901 and 811-4743)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 3 on Form N-1A filed July 19, 1988.
(File Nos. 33-6901 and 811-4743)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 6 on Form N-1A filed July 28, 1989.
(File Nos. 33-6901 and 811-4743)
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 12 on Form N-1A filed July 22, 1993.
(File Nos. 33-6901 and 811-4743)
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 14 on Form N-1A filed March 2, 1993.
(File Nos. 33-6901 and 811-4743)
(12) Not applicable;
(13) Copy of Initial Capital Understanding
(2.);
(14) Copy of Retirement Plan (to be filed by
amendment);
(15) (i)Copy of Distribution Plan (3.);
(ii) Copy of Dealer Agreement
(3.);
(iii) Conformed copy of 12b-1
Agreement;+
(16) Schedule for Computation of Performance
Data (4.);
(17) Power of Attorney (6.);
(18) Conformed copy of Opinion and Consent of
Counsel as to Availability of Rule
485(b).+
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 9, 1994
Shares of capital stock
($0.001 per Share par value)
Class A Shares 6,425
Class C Shares 1,309
Fortress Shares 1,385
Item 27. Indemnification: (5.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the
investment adviser, see the section entitled "Fund
Information - Management of the Fund" in Part A. The
affiliations with the Registrant of four of the
Trustees and one of the Officers of the investment
adviser are included in Part A of this Registration
Statement under "Management of the Fund - Officers and
Directors." The remaining Trustee of the investment
adviser, his position with the investment adviser, and,
in parentheses, his principal occupation is: Mark D.
Olson, Partner, Halbrook & Bayard, 107 West Market
Street, Georgetown, Delaware 19947.
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 2 on Form N-1A filed December 15,
1986. (File Nos. 33-6901 and 811-4743)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 2 on Form N-1A filed May 18, 1988.
(File Nos. 33-6901 and 811-4743)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 3 on Form N-1A filed July 19, 1988.
(File Nos. 33-6901 and 811-4743)
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 12 on Form N-1A filed July 22, 1993.
(File Nos. 33-6901 and 811-4743)
The remaining Officers of the investment adviser are:
William D. Dawson, III, J. Thomas Madden, Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot,
Senior Vice President-Economist; Peter R. Anderson,
Gary J. Madich, and J. Alan Minteer, Senior Vice
Presidents; Randall A. Bauer, Jonathan C. Conley,
Deborah A. Cunningham, Mark Durbiano, Roger A. Early,
Kathleen M. Foody-Malus, David C. Francis, Thomas M.
Franks, Edward C. Gonzales, Jeff A. Kozemchak, Marian
R. Marinack, Gregory M. Melvin, Susan M. Nason, Mary Jo
Ochson, Robert J. Ostrowski, Charles A. Ritter,
Christopher Wiles and John W. McGonigle, Vice
Presidents, Edward C. Gonzales, Treasurer, and John W.
McGonigle, Secretary. The business address of each of
the Officers of the Federated Research Division of the
investment adviser is Federated Investors Tower,
Pittsburgh, PA 15222-3779. These individuals are also
officers of a majority of the investment advisers to
the Funds listed in Part B of this Registration
Statement under "The Funds."
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor
for shares of the Registrant, also acts as
principal underwriter for the following open-end
investment companies: A.T. Ohio Municipal Money
Fund; Alexander Hamilton Funds; American Leaders
Fund, Inc.; Annuity Management Series; Automated
Cash Management Trust; Automated Government Money
Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; The Boulevard Funds; California
Municipal Cash Trust; Cambridge Series Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; Financial
Reserves Fund; First Priority Funds; First Union
Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fountain Square Funds; Fund for
U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International
Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Mark Twain Funds; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor
Funds; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; Signet Select Funds; SouthTrust
Vulcan Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Tower Mutual Funds; Trademark
Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury
Obligations; Vision Fiduciary Funds, Inc.; Vision
Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice
President Federated Investors Tower President, and
Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice
President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President Vice
President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Offices
Business Address With Underwriter With
Registrant
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 through 31a-3 promulgated thereunder are
maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company P.O. Box 8604
("Transfer Agent, Dividend Boston, MA 02266-8604
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8604
Company Boston, MA 02266-8604
("Custodian")
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with
respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant, LIBERTY
EQUITY INCOME FUND, INC., certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of
May, 1994.
LIBERTY EQUITY INCOME FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 25, 1994
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact May 25, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under Item
601/Reg SK
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
use of our report dated May 6, 1994, in Post-Effective
Amendment Number 18 to the Registrant Statement (Form N-1A No.
33-6901) and the related Prospectuses of Class A Shares,
Fortress Shares, and Class C Shares of Liberty Equity Income
Fund, Inc. dated May 31, 1994 and to the incorporation by
reference therein of our report dated May 6, 1994 on the
financial statements and financial highlights of Liberty
Equity Income Fund, Inc. included in its Annual Report to
Shareholders for the year ended March 31, 1994.
By: /s/ERNST & YOUNG
ERNST & YOUNG
Boston, Massachusetts
May 24, 1994
Exhibit 18 under Form
N-1A
Exhibit 99 under Item
601/Reg.S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.__________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS
HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
May 18, 1994
Liberty Equity Income Fund, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Liberty Equity Income Fund, Inc. ("Fund")
we have reviewed Post-effective Amendment No. 18 to the
Fund's Registration Statement to be filed with the
Securities and Exchange Commission under the Securities Act
of 1933 (File No. 33-6901). The subject Post-effective
Amendment will be filed pursuant to Paragraph (b) of Rule
485 and become effective pursuant to said Rule immediately
upon filing.
Our review also included an examination of other
relevant portions of the amended 1933 Act Registration
Statement of the Fund and such other documents and records
deemed appropriate. On the basis of this review we are of
the opinion that Post-effective Amendment No. 18 does not
contain disclosures which would render it ineligible to
become effective pursuant to Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation
letter as a part of the Fund's Registration Statement filed
with the Securities and Exchange Commission under the
Securities Act of 1933 and as part of any application or
registration statement filed under the Securities Laws of
the States of the United States.
Very truly yours,
Houston, Houston &
Donnelly
By: /s/Thomas J.
Donnelly
TJD:heh
Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY EQUITY INCOME FUND, INC.
RULE 12b-1 PLAN
This Plan ("Plan") is adopted as of this 4th day of
May, 1993, by the Board of Directors of LIBERTY EQUITY
INCOME FUND, INC. (the "Corporation"), a Maryland
corporation with respect to certain classes of shares
("Classes") of the Corporation set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended ("Act"), so
as to allow the Corporation to make payments as contemplated
herein, in conjunction with the distribution of Classes of
the Funds ("Shares").
2. This Plan is designed to finance activities of
Federated Securities Corp. ("FSC") principally intended to
result in the sale of Shares to include: (a) providing
incentives to financial institutions ("Institutions") to
sell Shares; (b) advertising and marketing of Shares to
include preparing, printing and distributing prospectuses
and sales literature to prospective shareholders and with
Institutions; and (c) implementing and operating the Plan.
In compensation for services provided pursuant to this Plan,
FSC will be paid a fee in respect of the following Classes
set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan
will be made pursuant to the "Distributor's Contract"
entered into by the Corporation and FSC. Any payments made
by FSC to Institutions with funds received as compensation
under this Plan will be made pursuant to the "Rule 12b-1
Agreement" entered into by FSC and the Institution.
4. FSC has the right (i) to select, in its sole
discretion, the Institutions to participate in the Plan and
(ii) to terminate without cause and in its sole discretion
any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in
effect, FSC shall prepare and furnish to the Board of
Directors of the Corporation, and the Board of Directors
shall review, a written report of the amounts expended under
the Plan and the purpose for which such expenditures were
made.
6. This Plan shall become effective with respect to
each Class (i) after approval by majority votes of: (a) the
Corporation's Board of Directors; (b) the members of the
Board of the Corporation who are not interested persons of
the Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding
voting securities of the particular Class, as defined in
Section 2(a)(42) of the Act and (ii) upon execution of an
exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to
each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
Class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the
Corporation and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase
materially the costs which the Classes may bear for
distribution pursuant to the Plan without being approved by
a majority vote of the outstanding voting securities of the
Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a
particular Class at any time by: (a) a majority vote of the
Disinterested Directors; or (b) a vote of a majority of the
outstanding voting securities of the particular Class as
defined in Section 2(a)(42) of the Act; or (c) by FSC on 60
days' notice to the Corporation.
11. While this Plan shall be in effect, the selection
and nomination of Disinterested Directors of the Corporation
shall be committed to the discretion of the Disinterested
Directors then in office.
12. All agreements with any person relating to the
implementation of this Plan shall be in writing and any
agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with
and governed by the laws of the Commonwealth of
Pennsylvania.
EXHIBIT A
to the
12b-1 Plan
LIBERTY EQUITY INCOME FUND, INC.
Class C Shares
This Plan is adopted by LIBERTY EQUITY INCOME FUND,
INC. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, FSC will be paid a monthly fee computed at the
annual rate of .75 of 1% of the average aggregate net asset
value of the Class C Shares of the Corporation held during
the month.
Witness the due execution hereof this 4th day of May,
1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT B
to the
12b-1 Plan
LIBERTY EQUITY INCOME FUND, INC.
Fortress Shares
This Plan is adopted by LIBERTY EQUITY INCOME FUND,
INC. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, FSC will be paid a monthly fee computed at the
annual rate of .25 of 1% of the average aggregate net asset
value of the Fortress Shares of the Corporation held during
the month.
Witness the due execution hereof this 1st day of
September, 1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
-1-
Exhibit 6(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY EQUITY INCOME FUND, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 1st day of March, 1993, by and
between Liberty Equity Income Fund, Inc. (the
"Corporation"), a Maryland Corporation, and FEDERATED
SECURITIES CORP. ("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties
hereto as follows:
1. The Corporation hereby appoints FSC as its agent
to sell and distribute shares of the Corporation which may
be offered in one or more series (the "Funds") consisting of
one or more classes (the "Classes") of shares (the
"Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current
Prospectuses of the Corporation. FSC hereby accepts such
appointment and agrees to provide such other services for
the Corporation, if any, and accept such compensation from
the Corporation, if any, as set forth in the applicable
exhibit to this Agreement.
2. The sale of any Shares may be suspended without
prior notice whenever in the judgment of the Corporation it
is in its best interest to do so.
3. Neither FSC nor any other person is authorized by
the Corporation to give any information or to make any
representation relative to any Shares other than those
contained in the Registration Statement, Prospectuses, or
Statements of Additional Information ("SAIs") filed with the
Securities and Exchange Commission, as the same may be
amended from time to time, or in any supplemental
information to said Prospectuses or SAIs approved by the
Corporation. FSC agrees that any other information or
representations other than those specified above which it or
any dealer or other person who purchases Shares through FSC
may make in connection with the offer or sale of Shares,
shall be made entirely without liability on the part of the
Corporation. No person or dealer, other than FSC, is
authorized to act as agent for the Corporation for any
purpose. FSC agrees that in offering or selling Shares as
agent of the Corporation, it will, in all respects, duly
conform to all applicable state and federal laws and the
rules and regulations of the National Association of
Securities Dealers, Inc., including its Rules of Fair
Practice. FSC will submit to the Corporation copies of all
sales literature before using the same and will not use such
sales literature if disapproved by the Corporation.
4. This Agreement is effective with respect to each
Class as of the date of execution of the applicable exhibit
and shall continue in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes
added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such
continuance is approved at least annually by the Directors
of the Corporation including a majority of the members of
the Board of Directors of the Corporation who are not
interested persons of the Corporation and have no direct or
indirect financial interest in the operation of any
Distribution Plan relating to the Corporation or in any
related documents to such Plan ("Disinterested Directors")
cast in person at a meeting called for that purpose. If a
Class is added after the first annual approval by the
Directors as described above, this Agreement will be
effective as to that Class upon execution of the applicable
exhibit and will continue in effect until the next annual
approval of this Agreement by the Directors and thereafter
for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of
any penalty, by the vote of a majority of the Disinterested
Directors or by a majority of the outstanding voting
securities of the particular Fund or Class on not more than
sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to
a particular Fund or Class by FSC on sixty (60) days'
written notice to the Corporation.
6. This Agreement may not be assigned by FSC and
shall automatically terminate in the event of an assignment
by FSC as defined in the Investment Company Act of 1940, as
amended, provided, however, that FSC may employ such other
person, persons, corporation or corporations as it shall
determine in order to assist it in carrying out its duties
under this Agreement.
7. FSC shall not be liable to the Corporation for
anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties imposed by this
Agreement.
8. This Agreement may be amended at any time by
mutual agreement in writing of all the parties hereto,
provided that such amendment is approved by the Directors of
the Corporation including a majority of the Disinterested
Directors of the Corporation cast in person at a meeting
called for that purpose.
9. This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of
Pennsylvania.
10. (a) Subject to the conditions set forth below,
the Corporation agrees to indemnify and hold harmless FSC
and each person, if any, who controls FSC within the meaning
of Section 15 of the Securities Act of 1933 and Section 20
of the Securities Act of 1934, as amended, against any and
all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based
upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and
supplemented) or the omission or alleged omission therefrom
of a material fact required to be stated therein or
necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the
Corporation about FSC by or on behalf of FSC expressly for
use in the Registration Statement, any Prospectuses and SAIs
or any amendment or supplement thereof.
If any action is brought against FSC or any
controlling person thereof with respect to which indemnity
may be sought against the Corporation pursuant to the
foregoing paragraph, FSC shall promptly notify the
Corporation in writing of the institution of such action and
the Corporation shall assume the defense of such action,
including the employment of counsel selected by the
Corporation and payment of expenses. FSC or any such
controlling person thereof shall have the right to employ
separate counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of FSC or such
controlling person unless the employment of such counsel
shall have been authorized in writing by the Corporation in
connection with the defense of such action or the
Corporation shall not have employed counsel to have charge
of the defense of such action, in any of which events such
fees and expenses shall be borne by the Corporation.
Anything in this paragraph to the contrary notwithstanding,
the Corporation shall not be liable for any settlement of
any such claim of action effected without its written
consent. The Corporation agrees promptly to notify FSC of
the commencement of any litigation or proceedings against
the Corporation or any of its officers or Directors or
controlling persons in connection with the issue and sale of
Shares or in connection with the Registration Statement,
Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the
Corporation, each of its Directors, each of its officers who
have signed the Registration Statement and each other
person, if any, who controls the Corporation within the
meaning of Section 15 of the Securities Act of 1933, but
only with respect to statements or omissions, if any, made
in the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Corporation
about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof. In case any action shall
be brought against the Corporation or any other person so
indemnified based on the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof, and
with respect to which indemnity may be sought against FSC,
FSC shall have the rights and duties given to the
Corporation, and the Corporation and each other person so
indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to
protect any person against liability to the Corporation or
its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the duties of such person
or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities
may be permitted pursuant to Section 17 of the Investment
Company Act of 1940, as amended, for Directors, officers,
FSC and controlling persons of the Corporation by the
Corporation pursuant to this Agreement, the Corporation is
aware of the position of the Securities and Exchange
Commission as set forth in the Investment Company Act
Release No. IC-11330. Therefore, the Corporation undertakes
that in addition to complying with the applicable provisions
of this Agreement, in the absence of a final decision on the
merits by a court or other body before which the proceeding
was brought, that an indemnification payment will not be
made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by
a majority vote of a quorum of non-party Disinterested
Directors, or (ii) by independent legal counsel in a written
opinion that the indemnitee was not liable for an act of
willful misfeasance, bad faith, gross negligence or reckless
disregard of duties. The Corporation further undertakes
that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is
ultimately determined that indemnification is appropriate)
against an officer, Trustee/Director, FSC or controlling
person of the Corporation will not be made absent the
fulfillment of at least one of the following conditions: (i)
the indemnitee provides security for his undertaking; (ii)
the Corporation is insured against losses arising by reason
of any lawful advances; or (iii) a majority of a quorum of
non-party Disinterested Directors or independent legal
counsel in a written opinion makes a factual determination
that there is reason to believe the indemnitee will be
entitled to indemnification.
11. If at any time the Shares of any Fund are offered
in two or more Classes, FSC agrees to adopt compliance
standards as to when a class of shares may be sold to
particular investors.
12. This Agreement will become binding on the parties
hereto upon the execution of the attached exhibits to the
Agreement.
Exhibit A
to the
Distributor's Contract
Liberty Equity Income Fund, Inc.
Class A Shares
The following provisions are hereby incorporated and
made part of the Distributor's Contract dated the 1st day of
March, 1993, between Liberty Equity Income Fund, Inc. and
Federated Securities Corp. with respect to the Classes of
the Funds set forth above:
1. The Trust hereby appoints FSC to select a group of
brokers ("Brokers") to sell shares of the above-listed
series and Classes ("Shares"), at the current offering price
thereof as described and set forth in the prospectuses of
the Trust, and to render administrative support services to
the Trust and its shareholders. In addition, the Trust
hereby appoints FSC to select a group of Administrators
("Administrators") to render administrative support services
to the Trust and its shareholders.
2. Administrative support services may include, but
are not limited to, the following eleven functions: (1)
account openings: the Broker or Administrator communicates
account openings via computer terminals located on the
Broker or Administrator's premises; 2) account closings:
the Broker or Administrator communicates account closings
via computer terminals; 3) enter purchase transactions:
purchase transactions are entered through the Broker or
Administrator's own personal computer or through the use of
a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges
to provide accounting support for all transactions. Broker
or Administrator also wires funds and receives funds for
Trust share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the
Trust's accounts, and provides training and supervision of
its personnel; 6) interest posting: Broker or Administrator
posts and reinvests dividends to the Trust's accounts; 7)
prospectus and shareholder reports: Broker or Administrator
maintains and distributes current copies of prospectuses and
shareholder reports; 8) advertisements: the Broker or
Administrator continuously advertises the availability of
its services and products; 9) customer lists: the Broker or
Administrator continuously provides names of potential
customers; 10) design services: the Broker or Administrator
continuously designs material to send to customers and
develops methods of making such materials accessible to
customers; and 11) consultation services: the Broker or
Administrator continuously provides information about the
product needs of customers.
3. FSC will enter into separate written agreements
with various firms to provide the services set forth in
Paragraph 1 herein. During the term of this Agreement, the
Trust will reimburse FSC for payments made by FSC to obtain
services pursuant to this Agreement, a monthly fee computed
at the annual rate of up to .50 of 1% of the average
aggregate net asset value of the Class A Shares held during
the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate
proration of any fee payable on the basis of the number of
days that the Agreement is in effect during the month. The
fees paid hereunder shall be in an amount equal to the
aggregate amount of periodic fees paid by FSC to Brokers and
Administrators pursuant to Paragraph 4 herein.
4. FSC, in its sole discretion, may pay Brokers and
Administrators a periodic fee in respect of Shares owned
from time to time by their clients or customers. The
schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by the
Trust's Board of Trustees.
5. FSC will prepare reports to the Board of Trustees
of the Trust on a quarterly basis showing amounts paid to
the various firms and the purpose for such payments.
6. In the event any amendment to this Agreement
materially increases the fees set forth in Paragraph 3, such
amendment must be approved by a vote of a majority of the
outstanding voting securities of the appropriate Fund or
Class.
In consideration of the mutual covenants set forth in
the Distributor's Contract dated March 1, 1993, between
Liberty Equity Income Fund, Inc. and Federated Securities
Corp., Liberty Equity Income Fund, Inc. executes and
delivers this Exhibit on behalf of the Funds and Classes
first set forth in this Exhibit.
Witness the due execution hereof this 1st day of March,
1993.
ATTEST: LIBERTY EQUITY INCOME FUND, INC.
/s/ John W. McGonigle By:/s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ E. Elliott Cohan By:/s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit B
to the
Distributor's Contract
Liberty Equity Income Fund, Inc.
Class C Shares
The following provisions are hereby incorporated and
made part of the Distributor's Contract dated the 1st day of
March, 1993, between Liberty Equity Income Fund, Inc. and
Federated Securities Corp. with respect to Classes of the
Funds set forth above.
1. The Corporation hereby appoints FSC to engage in
activities principally intended to result in the sale of
shares of the above-listed Classes ("Shares"). Pursuant to
this appointment, FSC is authorized to select a group of
brokers ("Brokers") to sell Shares at the current offering
price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render
administrative support services to the Corporation and its
shareholders. In addition, FSC is authorized to select a
group of administrators ("Administrators") to render
administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but
are not limited to, the following functions: 1) account
openings: the Broker or Administrator communicates account
openings via computer terminals located on the Broker's or
Administrator's premises; 2) account closings: the Broker
or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or
Administrator's own personal computer or through the use of
a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges
to provide accounting support for all transactions. Broker
or Administrator also wires funds and receives funds for
Corporation share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the
Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the
Corporation's accounts; 7) prospectus and shareholder
reports: Broker or Administrator maintains and distributes
current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously
advertises the availability of its services and products; 9)
customer lists: the Broker or Administrator continuously
provides names of potential customers; 10) design services:
the Broker or Administrator continuously designs material to
send to customers and develops methods of making such
materials accessible to customers; and 11) consultation
services: the Broker or Administrator continuously provides
information about the product needs of customers.
3. During the term of this Agreement, the Corporation
will pay FSC for services pursuant to this Agreement, a
monthly fee computed at the annual rate of .75 of 1.00% of
the average aggregate net asset value of the Class C Shares
held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the
month.
4. FSC may from time-to-time and for such periods as
it deems appropriate reduce its compensation to the extent
any Classes' expenses exceed such lower expense limitation
as FSC may, by notice to the Corporation, voluntarily
declare to be effective.
5. FSC will enter into separate written agreements
with various firms to provide certain of the services set
forth in Paragraph 1 herein. FSC, in its sole discretion,
may pay Brokers and Administrators a periodic fee in respect
of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time
to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors
of the Corporation on a quarterly basis showing amounts
expended hereunder including amounts paid to Brokers and
Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in
the Distributor's Contract dated March 1, 1993, between
Liberty Equity Income Fund, Inc. and Federated Securities
Corp., Liberty Equity Income Fund, Inc. executes and
delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 4th day of May,
1993.
ATTEST: LIBERTY EQUITY INCOME FUND, INC.
/s/ John W. McGonigle By:/s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ E. Elliott Cohan By:/s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit C
to the
Distributor's Contract
Liberty Equity Income Fund, Inc.
Fortress Shares
The following provisions are hereby incorporated and
made part of the Distributor's Contract dated the 1st day of
March, 1993, between Liberty Equity Income Fund, Inc. and
Federated Securities Corp. with respect to Classes of the
Funds set forth above.
1. The Corporation hereby appoints FSC to engage in
activities principally intended to result in the sale of
shares of the above-listed Classes ("Shares"). Pursuant to
this appointment, FSC is authorized to select a group of
brokers ("Brokers") to sell Shares at the current offering
price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render
administrative support services to the Corporation and its
shareholders. In addition, FSC is authorized to select a
group of administrators ("Administrators") to render
administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but
are not limited to, the following functions: 1) account
openings: the Broker or Administrator communicates account
openings via computer terminals located on the Broker's or
Administrator's premises; 2) account closings: the Broker
or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or
Administrator's own personal computer or through the use of
a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges
to provide accounting support for all transactions. Broker
or Administrator also wires funds and receives funds for
Corporation share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the
Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the
Corporation's accounts; 7) prospectus and shareholder
reports: Broker or Administrator maintains and distributes
current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously
advertises the availability of its services and products; 9)
customer lists: the Broker or Administrator continuously
provides names of potential customers; 10) design services:
the Broker or Administrator continuously designs material to
send to customers and develops methods of making such
materials accessible to customers; and 11) consultation
services: the Broker or Administrator continuously provides
information about the product needs of customers.
3. During the term of this Agreement, the Corporation
will pay FSC for services pursuant to this Agreement, a
monthly fee computed at the annual rate of .25 of 1.00% of
the average aggregate net asset value of the Fortress Shares
held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the
month.
4. FSC may from time-to-time and for such periods as
it deems appropriate reduce its compensation to the extent
any Classes' expenses exceed such lower expense limitation
as FSC may, by notice to the Corporation, voluntarily
declare to be effective.
5. FSC will enter into separate written agreements
with various firms to provide certain of the services set
forth in Paragraph 1 herein. FSC, in its sole discretion,
may pay Brokers and Administrators a periodic fee in respect
of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time
to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors
of the Corporation on a quarterly basis showing amounts
expended hereunder including amounts paid to Brokers and
Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in
the Distributor's Contract dated March 1, 1993, between
Liberty Equity Income Fund, Inc. and Federated Securities
Corp., Liberty Equity Income Fund, Inc. executes and
delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of
September, 1993.
ATTEST: LIBERTY EQUITY INCOME FUND, INC.
/s/ John W. McGonigle By:/s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ E. Elliott Cohan By:/s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
-1-
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY EQUITY INCOME FUND, INC.
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as
of this 1st day of March, 1993, by the Board of Directors
of Liberty Equity Income Fund, Inc. (the "Fund"), a Maryland
corporation with respect to certain classes of shares
("Classes") of the portfolios of the Corporation set forth
in exhibits hereto.
1. This Plan is adopted to allow the Fund to make
payments as contemplated herein to obtain certain personal
services for shareholders and/or the maintenance of
shareholder accounts ("Services").
2. This Plan is designed to compensate broker/dealers
and other participating financial institutions and other
persons ("Providers") for providing services to the Fund and
its shareholders. The Plan will be administered by
Federated Administrative Services, Inc. ("FAS"). In
compensation for the services provided pursuant to this
Plan, Providers will be paid a monthly fee computed at the
annual rate not to exceed .25 of 1% of the average aggregate
net asset value of the shares of the Fund held during the
month.
3. Any payments made by the Portfolios to any
Provider pursuant to this Plan will be made pursuant to the
"Shareholder Services Agreement" entered into by FAS on
behalf of the Fund and the Provider. Providers which have
previously entered into "Administrative Agreements" or "Rule
12b-1 Agreements" with Federated Securities Corp. may be
compensated under this Plan for Services performed pursuant
to those Agreements until the Providers have executed a
"Shareholder Services Agreement" hereunder.
4. The Fund has the right (i) to select, in its sole
discretion, the Providers to participate in the Plan and
(ii) to terminate without cause and in its sole discretion
any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains in
effect, FAS shall prepare and furnish to the Board of
Directors of the Fund, and the Board of Directors shall
review, a written report of the amounts expended under the
Plan.
6. This Plan shall become effective (i) after
approval by majority votes of: (a) the Fund's Board of
Directors; and (b) the members of the Board of the
Corporation who are not interested persons of the
Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect to
each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the Fund and
of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on it.
9. This Plan may be terminated at any time by: (a) a
majority vote of the Disinterested Directors; or (b) a vote
of a majority of the outstanding voting securities of the
Fund as defined in Section 2(a)(42) of the Act.
10. While this Plan shall be in effect, the selection
and nomination of Disinterested Directors of the Fund shall
be committed to the discretion of the Disinterested
Directors then in office.
11. All agreements with any person relating to the
implementation of this Plan shall be in writing and any
agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 9 herein.
12. This Plan shall be construed in accordance with
and governed by the laws of the Commonwealth of
Pennsylvania.
Witness the due execution hereof this 1st day of March,
1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B Fisher
President
EXHIBIT A
to the
Shareholder Services Plan
Liberty Equity Income Fund, Inc.
Class A Shares
This Plan is adopted by Liberty Equity Income Fund,
Inc. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Class A Shares of the Corporation held
during the month.
Witness the due execution hereof this 1st day of March,
1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT B
to the
Shareholder Services Plan
Liberty Equity Income Fund, Inc.
Class C Shares
This Plan is adopted by Liberty Equity Income Fund,
Inc. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Class C Shares of the Corporation held
during the month.
Witness the due execution hereof this 4th day of May,
1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT C
to the
Shareholder Services Plan
Liberty Equity Income Fund, Inc.
Fortress Shares
This Plan is adopted by Liberty Equity Income Fund,
Inc. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Fortress Shares of the Corporation held
during the month.
Witness the due execution hereof this 1st day of
September, 1993.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT D
to the
Shareholder Services Plan
Liberty Equity Income Fund, Inc.
Class B Shares
This Plan is adopted by Liberty Equity Income Fund,
Inc. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Class B Shares of the Corporation held
during the month.
Witness the due execution hereof this 1st day of June,
1994.
LIBERTY EQUITY INCOME FUND, INC.
By:/s/ Richard B. Fisher
President
FSCO Services Providers Contract1 Page
1 December 1, 1993
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and
between those investment companies listed on Exhibit 1 as may be
amended from time to time, having their principal office and
place of business at Federated Investors Tower, Pittsburgh, PA
15222-3779 (the "Trust"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as
"Funds") of the Trust, and FEDERATED SERVICES COMPANY, a Delaware
business trust, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(the "Company").
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), with authorized and issued shares of
capital stock or beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide
certain pricing, accounting and recordkeeping services for each
of the Funds, including any classes of shares issued by any Fund
("Classes"), and the Company is willing to furnish such services;
and
WHEREAS, the Trust desires to appoint the Company as its
transfer agent, dividend disbursing agent, and agent in
connection with certain other activities, and the Company desires
to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent
to select, negotiate and subcontract for custodian services from
an approved list of qualified banks and the Company desires to
accept such appointment; and
WHEREAS, from time to time the Trust may desire and may
instruct the Company to subcontract for the performance of
certain of its duties and responsibilities hereunder to State
Street Bank and Trust Company or another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably
for those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes,
for the period and on the terms set forth in this Agreement. The
Company accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as
provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the
Trust with regard to fund accounting for the Trust, and/or the
Funds, and/or the Classes, and in connection therewith undertakes
to perform the following specific services;
A. Value the assets of the Funds and determine the net asset
value per share of each Fund and/or Class, at the time and in the
manner from time to time determined by the Board and as set forth
in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the
Rules thereunder in connection with the services provided by the
Company;
E. Preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act the records to be maintained by Rule 31a-1 under the
1940 Act in connection with the services provided by the Company.
The Company further agrees that all such records it maintains for
the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust such records upon the Trust's
request;
F. At the request of the Trust, prepare various reports or
other financial documents required by federal, state and other
applicable laws and regulations; and
G. Such other similar services as may be reasonably
requested by the Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services
rendered pursuant to Section One of this Agreement in accordance
with the fees set forth on Fee Schedules A ("A1, A2, A3 etc..."),
annexed hereto and incorporated herein, as may be added or
amended from time to time. Such fees do not include out-of-
pocket disbursements of the Company for which the Funds shall
reimburse the Company upon receipt of a separate invoice. Out-of-
pocket disbursements shall include, but shall not be limited to,
the items specified in Schedules B ("B1, B2, B3, etc..."),
annexed hereto and incorporated herein, as may be added or
amended from time to time. Schedules B may be modified by the
Company upon not less than thirty days' prior written notice to
the Trust.
B. The Fund and/or the Class, and not the Company, shall
bear the cost of: custodial expenses; membership dues in the
Investment Company Institute or any similar organization;
transfer agency expenses; investment advisory expenses; costs of
printing and mailing stock certificates, Prospectuses, reports
and notices; administrative expenses; interest on borrowed money;
brokerage commissions; taxes and fees payable to federal, state
and other governmental agencies; fees of Trustees or Directors of
the Trust; independent auditors expenses; Federated
Administrative Services and/or Federated Administrative Services,
Inc. legal and audit department expenses billed to Federated
Services Company for work performed related to the Trust, the
Funds, or the Classes; law firm expenses; or other expenses not
specified in this Article 3 which may be properly payable by the
Funds and/or classes.
C. The Company will send an invoice to each of the Funds as
soon as practicable after the end of each month. Each invoice
will provide detailed information about the compensation and out-
of-pocket expenses in accordance with Schedules A and Schedules
B. The Funds and or the Classes will pay to the Company the
amount of such invoice within 30 days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedules A revised Schedules dated
and signed by a duly authorized officer of the Trust and/or the
Funds and a duly authorized officer of the Company.
E. The fee for the period from the effective date of this
Agreement with respect to a Fund or a Class to the end of the
initial month shall be prorated according to the proportion that
such period bears to the full month period. Upon any termination
of this Agreement before the end of any month, the fee for such
period shall be prorated according to the proportion which such
period bears to the full month period. For purposes of
determining fees payable to the Company, the value of the Fund's
net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to
time subcontract to, employ or associate with itself such person
or persons as the Company may believe to be particularly suited
to assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they
may be officers and employees who are employed by both the
Company and the Funds. The compensation of such person or
persons shall be paid by the Company and no obligation shall be
incurred on behalf of the Trust, the Funds, or the Classes in
such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this
Agreement, the Trust hereby appoints the Company to act as, and
the Company agrees to act as, transfer agent and dividend
disbursing agent for each Fund's Shares, and agent in connection
with any accumulation, open-account or similar plans provided to
the shareholders of any Fund ("Shareholder(s)"), including
without limitation any periodic investment plan or periodic
withdrawal program.
As used throughout this Agreement, a "Proper Instruction"
means a writing signed or initialed by one or more person or
persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or
type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes
them to have been given by a person previously authorized in
Proper Instructions to give such instructions with respect to the
transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in
writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices
provided that the Trust, or the Fund, and the Company are
satisfied that such procedures afford adequate safeguards for the
Fund's assets. Proper Instructions may only be amended in
writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance
with Proper Instructions as may be provided from time to time by
the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian
of the relevant Fund, (the "Custodian"). The
Company shall notify the Fund and the Custodian on a
daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with
the Fund's current Prospectus, the Company shall
compute and issue the appropriate number of Shares of
each Fund and/or Class and hold such Shares in the
appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a
Shareholder or its agent requests a certificate, the
Company, as Transfer Agent, shall countersign and
mail by first class mail, a certificate to the
Shareholder at its address as set forth on the
transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the
purchase of Shares of the Fund and/or Class is
returned unpaid for any reason, the Company shall
debit the Share account of the Shareholder by the
number of Shares that had been credited to its
account upon receipt of the check or other order,
promptly mail a debit advice to the Shareholder, and
notify the Fund and/or Class of its action. In the
event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the
amount of any dividends paid with respect to such
Shares, the Fund and/the Class or its distributor
will reimburse the Company on the amount of such
excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of
any distribution to Shareholders, the Company shall
act as Dividend Disbursing Agent for the Funds in
accordance with the provisions of its governing
document and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders.
As the Dividend Disbursing Agent, the Company shall,
on or before the payment date of any such
distribution, notify the Custodian of the estimated
amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the
cash amount to be paid out. The Company shall
reconcile the amounts so requested and the amounts
actually received with the Custodian on a daily
basis. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution
or dividend, appropriate credits shall be made to the
Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for
each Fund and Class and advise the Trust, each Fund
and Class and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and
redemption directions and, if such redemption
requests comply with the procedures as may be
described in the Fund Prospectus or set forth in
Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company
shall notify the Funds on a daily basis of the total
amount of redemption requests processed and monies
paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption
proceeds from the Custodian with respect to any
redemption, the Company shall pay or cause to be paid
the redemption proceeds in the manner instructed by
the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other
request for redemption does not comply with the
procedures for redemption approved by the Fund, the
Company shall promptly notify the Shareholder of such
fact, together with the reason therefor, and shall
effect such redemption at the price applicable to the
date and time of receipt of documents complying with
said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned
accounts and uncashed checks for state escheat
requirements on an annual basis and report such
actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of
each Fund, and/or Class, and maintain pursuant to
applicable rules of the Securities and Exchange
Commission ("SEC") a record of the total number of
Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also
provide the Fund on a regular basis or upon
reasonable request with the total number of Shares
which are authorized and issued and outstanding, but
shall have no obligation when recording the issuance
of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take
cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records
pursuant to applicable rules of the SEC relating to
the services to be performed hereunder in the form
and manner as agreed to by the Trust or the Fund to
include a record for each Shareholder's account of
the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for
all transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the
case of a foreign account or an account for which
withholding is required by the Internal Revenue
Code;
(f) Any dividend reinvestment order, plan
application, dividend address and correspondence
relating to the current maintenance of the
account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company
to perform the calculations contemplated or
required by this Agreement.
(3) The Company shall preserve any such records required
to be maintained pursuant to the rules of the SEC for
the periods prescribed in said rules as specifically
noted below. Such record retention shall be at the
expense of the Company, and such records may be
inspected by the Fund at reasonable times. The
Company may, at its option at any time, and shall
forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files,
records and documents created and maintained by the
Company pursuant to this Agreement, which are no
longer needed by the Company in performance of its
services or for its protection. If not so turned
over to the Fund, such records and documents will be
retained by the Company for six years from the year
of creation, during the first two of which such
documents will be in readily accessible form. At the
end of the six year period, such records and
documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically
the following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding
in each state for "blue sky" purposes as
determined according to Proper Instructions
delivered from time to time by the Fund to the
Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads,
redemption fees, or other transaction- or sales-
related payments;
(f) Such other information as may be agreed upon from
time to time.
(2) The Company shall prepare in the appropriate form,
file with the Internal Revenue Service and
appropriate state agencies, and, if required, mail to
Shareholders, such notices for reporting dividends
and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are
required to be withheld under applicable federal and
state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set
forth above, the Company shall:
(a) Perform all of the customary services of a
transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation,
open-account or similar plans (including without
limitation any periodic investment plan or
periodic withdrawal program), including but not
limited to: maintaining all Shareholder
accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien
accounts), preparing and filing reports on U.S.
Treasury Department Form 1099 and other
appropriate forms required with respect to
dividends and distributions by federal
authorities for all Shareholders, preparing and
mailing confirmation forms and statements of
account to Shareholders for all purchases and
redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders,
and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to
monitor the total number of Shares of each Fund
and/or Class sold in each state ("blue sky
reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those
transactions and assets to be treated as exempt
from the blue sky reporting for each state and
(ii) verify the classification of transactions
for each state on the system prior to activation
and thereafter monitor the daily activity for
each state. The responsibility of the Company
for each Fund's and/or Class's state blue sky
registration status is limited solely to the
recording of the initial classification of
transactions or accounts with regard to blue sky
compliance and the reporting of such transactions
and accounts to the Fund as provided above.
F. Other Duties
(1) The Company shall answer correspondence from
Shareholders relating to their Share accounts and
such other correspondence as may from time to time be
addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists,
mail proxy cards and other material supplied to it by
the Fund in connection with Shareholder Meetings of
each Fund; receive, examine and tabulate returned
proxies, and certify the vote of the Shareholders;
(3) The Company shall establish and maintain facilities
and procedures for safekeeping of stock certificates,
check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and
for keeping account of, such certificates, forms and
devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the
preparation, contents and distribution of their own
and/or their classes' Prospectus and for complying with
all applicable requirements of the Securities Act of
1933, as amended (the "1933 Act"), the 1940 Act and any
laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient
supply of blank Share certificates and from time to time
shall renew such supply upon request of the Company.
Such blank Share certificates shall be properly signed,
manually or by facsimile, if authorized by the Trust and
shall bear the seal of the Trust or facsimile thereof;
and notwithstanding the death, resignation or removal of
any officer of the Trust authorized to sign certificates,
the Company may continue to countersign certificates
which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the
declaration of any dividend or distribution on account of
any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of
this Agreement, the Trust and/or the Fund agree to pay
the Company an annual maintenance fee for each
Shareholder account as set out in Schedules C ("C1, C2,
C3 etc..."), attached hereto, as may be added or amended
from time to time. Such fees may be changed from time to
time subject to written agreement between the Trust and
the Company. Pursuant to information in the Fund
Prospectus or other information or instructions from the
Fund, the Company may sub-divide any Fund into Classes or
other sub-components for recordkeeping purposes. The
Company will charge the Fund the fees set forth on
Schedule C for each such Class or sub-component the same
as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the
Trust and/or Fund agree to reimburse the Company for out-
of-pocket expenses or advances incurred by the Company
for the items set out in Schedules D ("D1, D2, D3
etc..."), attached hereto, as may be added or amended
from time to time. In addition, any other expenses
incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed
by the appropriate Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds
as soon as practicable at the end of each month. Each
invoice will provide detailed information about the
Compensation and out-of-pocket expenses in accordance
with Schedules C and Schedules D. The Trust or the Funds
will pay to the Company the amount of such invoice within
30 days following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under
this Section Two may be assigned by either party without
the written consent of the other party.
(1) This Agreement shall inure to the benefit of and be
binding upon the parties and their respective
permitted successors and assigns.
(2) The Company may without further consent on the part
of the Trust subcontract for the performance hereof
with (A) State Street Bank and its subsidiary, Boston
Financial Data Services, Inc., a Massachusetts Trust
("BFDS"), which is duly registered as a transfer
agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended, or any succeeding
statute ("Section 17A(c)(1)"), or (B) a BFDS
subsidiary duly registered as a transfer agent
pursuant to Section 17A(c)(1), or (C) a BFDS
affiliate, or (D) such other provider of services
duly registered as a transfer agent under Section
17A(c)(1) as Company shall select; provided, however,
that the Company shall be as fully responsible to the
Trust for the acts and omissions of any subcontractor
as it is for its own acts and omissions; or
(3) The Company shall upon instruction from the Trust
subcontract for the performance hereof with an Agent
selected by the Trust, other than BFDS or a provider
of services selected by Company, as described in (2)
above; provided, however, that the Company shall in
no way be responsible to the Trust for the acts and
omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i)
meets the criteria established in Section 17(f) of the 1940 Act
and (ii) has been approved by the Board as eligible for selection
by the Company as a custodian (the "Eligible Custodian"). The
Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board,
the Company shall:
(1) evaluate the nature and the quality of the custodial
services provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of
the Trust as Custodian of the Trust's assets substantially
on the terms set forth as the form of agreement in Exhibit
2;
(3) negotiate and enter into agreements with the
Custodians for the benefit of the Trust, with the Trust as
a party to each such agreement. The Company shall not be
a party to any agreement with any such Custodian;
(4) establish procedures to monitor the nature and the
quality of the services provided by the Custodians;
(5) continuously monitor the nature and the quality of
services provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports
on the activities and services of the Custodians; (ii) the
nature and amount of disbursement made on account of the
Trust with respect to each custodial agreement; and (iii)
such other information as the Board shall reasonably
request to enable it to fulfill its duties and obligations
under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the Company
an annual fee as set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as
soon as practicable at the end of each month. Each
invoice will provide detailed information about the
Compensation and out-of-pocket expenses in occurrence
with Schedule E. The Trust and/or Fund will pay to the
Company the amount of such invoice within 30 days
following the receipt of the invoice.
Article 12. Representations.
The Company represents and warrants that it has obtained
all required approvals from all government or regulatory
authorities necessary to enter into this arrangement and to
provide the services contemplated in Section Three of this
Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company
under this Agreement, the Trust shall file with the
Company the following documents:
(1) A copy of the Charter and By-Laws of the Trust and
all amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share
certificates of the Trust or the Funds in the forms
approved by the Board of the Trust with a certificate
of the Secretary of the Trust as to such approval;
(4) All account application forms and other documents
relating to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the
following documents:
(1) Each resolution of the Board of the Trust authorizing
the original issuance of each Fund's, and/or Class's
Shares;
(2) Each Registration Statement filed with the SEC
and amendments thereof and orders relating thereto in
effect with respect to the sale of Shares of any
Fund, and/or Class;
(3) A certified copy of each amendment to the governing
document and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board
authorizing officers to give Proper Instructions to
the Custodian and agents for fund accountant, custody
services procurement, and shareholder recordkeeping
or transfer agency services;
(5) Specimens of all new Share certificates representing
Shares of any Fund, accompanied by Board resolutions
approving such forms;
(6) Such other certificates, documents or opinions which
the Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing
and in good standing under the laws of the State of
Delaware.
(2) It is duly qualified to carry on its business in the
State of Delaware.
(3) It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this
Agreement.
(4) All requisite corporate proceedings have been taken
to authorize it to enter into and perform its
obligations under this Agreement.
(5) It has and will continue to have access to the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
(6) It is in compliance with federal securities law
requirements and in good standing as a transfer
agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and
existing and in good standing under the laws of its
state of organization;
(2) It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform its
obligations under this Agreement;
(3) All corporate proceedings required by said Charter
and By-Laws have been taken to authorize it to enter
into and perform its obligations under this
Agreement;
(4) The Trust is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law
filings have been made and will continue to be made,
with respect to all Shares of each Fund being offered
for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust
or Fund shall indemnify and hold the Company, including
its officers, directors, shareholders and their agents
employees and affiliates, harmless against any and all
losses, damages, costs, charges, counsel fees, payments,
expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply
with the terms of this Agreement, or which arise out
of the Trust's or The Fund's lack of good faith,
negligence or willful misconduct or which arise out
of the breach of any representation or warranty of
the Trust or Fund hereunder or otherwise.
(3) The reliance on or use by the Company or its agents
or subcontractors of information, records and
documents in proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on
behalf of the Fund, its Shareholders or investors
regarding the purchase, redemption or transfer of
Shares and Shareholder account information; or
(b) have been prepared and/or maintained by the Fund
or its affiliates or any other person or firm on
behalf of the Trust.
(4) The reliance on, or the carrying out by the Company
or its agents or subcontractors of Proper
Instructions of the Trust or the Fund.
(5) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations of
any state that such Shares be registered in such
state or in violation of any stop order or other
determination or ruling by any federal agency or any
state with respect to the offer or sale of such
Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.A. from liability for any act or
omission resulting from the Company's willful
misfeasance, bad faith, gross negligence or reckless
disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each
Fund harmless from and against any and all losses,
damages, costs, charges, counsel fees, payments, expenses
and liabilities arising out of or attributable to any
action or failure or omission to act by the Company as a
result of the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the
Trust or Fund for instructions, and may consult with
legal counsel with respect to any matter arising in
connection with the services to be performed by the
Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any
action reasonably taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel
provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its
agents and subcontractors shall be protected and
indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Trust or the
Fund, and the proper countersignature of any former
transfer agent or registrar, or of a co-transfer agent or
co-registrar.
D. Notification
In order that the indemnification provisions contained in
this Article 15 shall apply, upon the assertion of a
claim for which either party may be required to indemnify
the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and
shall keep the other party advised with respect to all
developments concerning such claim. The party who may be
required to indemnify shall have the option to
participate with the party seeking indemnification in the
defense of such claim. The party seeking indemnification
shall in no case confess any claim or make any compromise
in any case in which the other party may be required to
indemnify it except with the other party's prior written
consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other. Should
the Trust exercise its rights to terminate, all out-of-pocket
expenses associated with the movement of records and materials
will be borne by the Trust or the appropriate Fund.
Additionally, the Company reserves the right to charge for any
other reasonable expenses associated with such termination. The
provisions of Article 15 shall survive the termination of this
Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written
agreement executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the
Company and the Trust may from time to time agree on such
provisions interpretive of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with
the general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Charter. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and
other writings delivered or mailed postage prepaid to the Trust
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-
3779, or to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Trust
or the Company may hereafter specify, shall be deemed to have
been properly delivered or given hereunder to the respective
address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and
Shareholders of the Trust.
The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an
authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Trust, but bind
only the appropriate property of the Fund, or Class, as provided
in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and
Shareholders of the Company.
The execution and delivery of this Agreement have been
authorized by the Trustees of the Company and signed by an
authorized officer of the Company, acting as such, and neither
such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Company, but bind
only the property of the Company as provided in the Declaration
of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not
be assignable with respect to the Trust or the Funds by either of
the parties hereto except by the specific written consent of the
other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to
the subject hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the
Trust, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all
properties of the Trust held by it hereunder. If no such
successor agent shall be appointed, the Company shall at its
office upon receipt of Proper Instructions deliver such
properties in accordance with such instructions.
In the event that no written order designating a successor
agent or Proper Instructions shall have been delivered to the
Company on or before the date when such termination shall become
effective, then the Company shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus,
and undivided profits, as shown by its last published report, of
not less than $2,000,000, all properties held by the Company
under this Agreement. Thereafter, such bank or trust company
shall be the successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a
result of work stoppage, power or other mechanical failure,
natural disaster, governmental action, communication disruption
or other impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without
the prior written consent of the other party, except that either
party may assign to a successor all of or a substantial portion
of its business, or to a party controlling, controlled by, or
under common control with such party. Nothing in this Article 28
shall prevent the Company from delegating its responsibilities to
another entity to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal,
void or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf under
their seals by and through their duly authorized officers, as of
the day and year first above written.
ATTEST: INVESTMENT
COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_________ By:__/s/ John F.
Donahue__________
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED
SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James
J. Dolan____________
Jeannette Fisher-Garber James J. Dolan
Secretary President
Schedule A
Fund Accounting
Fee Schedule
I. Portfolio Record Keeping/Fund Accounting Services
Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general
ledger and capital stock accounts. Prepare daily trial balance.
Provide selected general ledger reports. Calculate net asset
value daily. Securities yield or market value quotations will be
provided to State Street by the fund or via State Street Bank
automated pricing services.
ANNUAL FEES
ASSET
First $250 Million 2.0 Basis Points
Next $250 Million 1.5 Basis Points
Next $250 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $39,000
Additional class of shares per year $12,000
II. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments
and the preparation of special reports will be subject to
negotiation.
III. Term of the Contract
The parties agree that this fee schedule shall become effective
June 1, 1993 and will remain in effect until it is revised as a
result of negotiations initiated by either party.
Schedule A1
Fund Accounting
Fee Schedule
Annual
First $100 Million 3.0 Basis Points
$100 Million - $300 Million 2.0 Basis Points
$300 Million - $500 Million 1.0 Basis Points
Over $500 Million 0.5 Basis Points
Fund Minimum $39,000
Additional Class of Shares $12,000
(Plus pricing charges and other out-of-pocket expenses)
Schedule B
Out-of-Pocket Expenses
Fund Accounting
Out-of-pocket expenses include, but are not limited to,
the following:
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
- Security Pricing Services
- Variable Rate Change Notification Services
- Paydown Factor Notification Services
Schedule C
Fees and Expenses
Shareholder Recordkeeping
I. Transfer Agency Services
Base Fee * (Annual fee per fund, class or other subdivision)$24,000
Account Fee* (Annual account charge)
(includes system access and funds control and reconcilement)
o Daily dividend fund $16.00
o Monthly dividend fund $10.00
o Quarterly dividend fund $10.00
o Contingent Deferred Sales Charge (Additionally) $5.00
(monthly and quarterly funds only)
o Closed Accounts* $1.20
(annual)
o Termination Fee (One time charge) $20,000
II. Shareholder Services
Other Account Fees* (Services or features not covered above)
o Account Activity Processing $3.50
(includes account establishment, transaction and maintenance
processing)
o Account Servicing $4.50
(includes shareholder servicing and correspondence)
* All fees are annualized and will be prorated on
a monthly basis for billing purposes. Out-of-pocket
expenses are not covered by these fees.
Schedule C1
Federated Investors
- Federated Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all
transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is
made for an account in the month that an account opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
o Money Market Fund/Daily Accrual $16.65
o Money Market Fund/Sweep Account $10.00
o Fluctuating NAV/Daily Accrual
- Non FundServe $16.65
- Non Networked FundServe $14.65
o CDSC/Declared Dividend
- Non FundServe $13.75
- Non Networked FundServe $11.75
- Networking Levels 1, 2, and 4 $11.75
- Networking Level 3 $9.00
o Declared Dividend
- Non FundServe $8.75
- Non Networked FundServe $6.75
- Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and
certification and complies to all known government regulations
regarding TIN processing.
o Maintenance $.25 per item
o Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per
account per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
o The monthly maintenance charge for each fund will be the
actual account fees or $1000, whichever is greater.
o All funds will be subject to the minimum monthly fee of
$1,000 except that the minimum will be waived for the
initial six months or until the fund's net assets exceed
$50,000,000, whichever occurs first.
o The "clone" funds will be subject to a monthly minimum fee of
$600.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage,
forms, telephone, microfilm, microfiche, and expenses incurred at
the specific direction of the fund. Postage for mass mailings is
due seven days in advance of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
Schedule C2
Federated Investors
- Bank Proprietary Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all
transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is
made for an account in the month that an account opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
o Money Market Fund/Daily Accrual $16.65
o Money Market Fund/Sweep Account $10.00
o Fluctuating NAV/Daily Accrual
- Non FundServe $16.65
- Non Networked FundServe $14.65
o CDSC/Declared Dividend
- Non FundServe $13.75
- Non Networked FundServe $11.75
- Networking Levels 1, 2, and 4 $11.75
- Networking Level 3 $9.00
o Declared Dividend
- Non FundServe $8.75
- Non Networked FundServe $6.75
- Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and
certification and complies to all known government regulations
regarding TIN processing.
o Maintenance $.25 per item
o Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per
account per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
o The monthly maintenance charge for each fund will be the
actual account fees or $2000, whichever is greater.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage,
forms, telephone, microfilm, microfiche, and expenses incurred at
the specific direction of the fund. Postage for mass mailings is
due seven days in advance of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
SCHEDULE D
Out-of-Pocket Expenses Schedule
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific Enhancements
- Disaster Recovery
SCHEDULE E
Fee Schedule
I. Custody Services
Maintain Custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions.
ANNUAL FEES
ASSET
First $500 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $15,000
Wire Fees $2.70 per wire
Settlements:
o Each DTC Commercial Paper $9.00
o Each DTC Transaction $9.00
o Each Federal Reserve Book Entry Transaction (Repo) $4.50
o Each Repo with Banks Other than State Street Bank $7.50
o Each Physical Transaction (NY/Boston, Private Placement)$21.75
o Each Option Written/Exercised/Expired $18.75
o Each Stock Load Transaction $12.00
o Each Book Entry Muni (Sub-custody) Transaction $15.00
o Index Fund/ETD Cost + 15%
II. Out-Of-Pocket Expenses
Telephone
Postage & Insurance
Armored carrier costs
Legal fees
Supplies related to fund records
Processing validation certificates
Forms, envelopes, Xerox copies, supplies, etc.
III. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments
and the preparation of special reports will be subject to
negotiation.
IV. Coupon Clipping
Monitoring for calls and processing for each monthly issue held
Monthly Charge $5.00
V. Balance Credit
A balance credit equal to 75% of the average balance in the
custodian account for the monthly billed times the 30-day T-Bill
Rate on the last Monday of the month billed will be applied
against Section I through IV above.
VI. Term of the Contract
The parties agree that this fee schedule shall become effective
June 1, 1993 and will remain in effect until it is revised as a
result of negotiations initiated by either party.
EXHIBIT 1
FA=Fund Accounting
SR=Shareholder Recordkeeping
CSP=Custody Services Procurement
CONTRACT SERVICES RELEVANT
DATE INVESTMENT COMPANY PROVIDED SCHEDULES
12/1/93 111 Corcoran Fund
12/1/93 111 Corcoran Bond Fund FA, SR A,B,C,D
12/1/93 111 Corcoran North Carolina Municipal
Securities Fund FA, SR A,B,C,D
12/1/93 American Leaders Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Automated Cash Management Trust FA,SR,CSP A,B,C,D,E
12/1/93 Automated Government Money Trust FA,SR,CSP A,B,C,D,E
01/07/94 BankSouth Select Funds SR, C,D
01/07/94 BankSouth Select Georgia Tax-Free Income Fund SR, C,D
01/07/94 BankSouth Select Government Money Market Fund SR, C,D
01/07/94 BankSouth Select Prime Money Market Fund SR, C,D
01/07/94 BankSouth Select Bond Fund SR, C,D
01/07/94 BankSouth Select Equity Fund SR, C,D
12/1/93 BayFunds FA A1,B
12/1/93 BayFunds Money Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Bond Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Equity Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Short-Term Yield Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds U.S. Treasury Money Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 The Biltmore Funds FA A1,B
12/1/93 Biltmore Balanced Fund FA A1,B
12/1/93 Biltmore Equity Fund FA A1,B
12/1/93 Biltmore Fixed Income Fund FA A1,B
12/1/93 Biltmore Equity Index Fund FA A1,B
12/1/93 Biltmore Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Prime Cash Management Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Biltmore Short-Term Fixed Income Fund FA A1,B
12/1/93 Biltmore Special Values Fund FA A1,B
12/1/93 Biltmore Tax-Free Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore U.S. Treasury Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Quantitative Equity Fund FA A1,B
12/1/93 The Boulevard Funds FA,SR A1,B,C,D
12/1/93 Boulevard Blue Chip Growth Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Income Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Municipal Fund FA,SR A1,B,C,D
12/1/93 Boulevard Strategic Balanced Fund FA,SR A1,B,C,D
12/1/93 California Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series, Inc.
12/1/93 Government Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Prime Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series II
12/1/93 Municipal Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 DG Investor Series
12/1/93 DG Equity Fund FA,SR A1,B,C,D
12/1/93 DG Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Limited Term Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Municipal Income Fund FA,SR A1,B,C,D
12/1/93 DG U.S. Government Money Market Fund FA,SR A1,B,C,D
12/1/93 Federated ARMs Fund
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Exchange Fund, Ltd. FA,SR,CSP A,B,C,D,E
12/1/93 Federated GNMA Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Government Trust
12/1/93 Automated Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Automated Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Federated Growth Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated High Yield Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Securities Trust
12/1/93 Federated Short-Term Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Intermediate Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Index Trust
12/1/93 Max-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Mid-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Mini-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Investment Funds
12/1/93 Growth Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 High Quality Bond Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate Municipal Income Portfolio FA,SR,CSP
A,B,C,D,E
12/1/93 Value Equity Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Federated Master Trust
12/1/93 Federated Municipal Trust
12/1/93 Alabama Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Connecticut Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Massachusetts Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 BayFund Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Minnesota Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Term U.S. Government Trust FA,SR,CSP A,B,C,D,E
12/1/93 Stock and Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Stock Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Tax-Free Trust FA,SR,CSP A,B,C,D,E
12/1/93 Financial Reserves Fund FA A1,B
12/1/93 First Priority Funds
12/1/93 First Priority Equity Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Fixed Income Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Treasury Money Market
Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Limited Maturity Government Fund FA,SR A1,B,C,D
12/1/93 Fixed Income Securities, Inc.
12/1/93 Limited Term Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Limited Term Municipal Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Multi-State Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Limited Maturity Government Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Adjustable Rate U.S. Government Fund, Inc. FA,SR,CSP
A,B,C,D,E
12/1/93 Fortress Municipal Income Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Utility Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 FT Series, Inc.
12/1/93 International Equity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 International Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fund for U.S. Government Securities, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Income Securities, Inc. FA,SR,CSP A,B,C,D,E
1/11/94 Insight Institutional Series, Inc.
1/11/94 Insight Adjustable Rate Mortgage Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Income Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Municipal Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight U.S. Government Fund FA,SR,CSP A,B,C1,D,E
12/1/93 Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Intermediate Municipal Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate Municipal Trust FA,SR,CSP
A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Fund, Inc.
12/1/93 Capital Growth Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Trust
12/1/93 High Quality Stock Fund FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Securities Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Government Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Edward D. Jones & Co. Daily Passport Cash Trust FA,SR,CSP
A,B,C,D,E
12/1/93 Liberty Equity Income Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty High Income Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Municipal Securities Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Term Trust, Inc. - 1999 FA,SR,CSP A,B,C,D,E
12/1/93 Liberty U.S. Government Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Utility Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liquid Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Star Funds
12/1/93 Star Prime Obligations Fund FA,SR A,B,C,D
12/1/93 Star Relative Value Fund FA,SR A,B,C,D
12/1/93 Star Tax-Free Money Market Fund FA,SR A,B,C,D
12/1/93 Star Treasury Fund FA,SR A,B,C,D
12/1/93 Star U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 The Stellar Fund FA,SR A,B,C,D
12/1/93 Magna Funds
12/1/93 Magna Intermediate Government Fund SR C,D
12/1/93 Mark Twain Funds
12/1/93 Mark Twain Equity Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Fixed Income Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Government Money Market
Portfolio FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Mark Twain Municipal Income Portfolio FA,SR A,B,C,D
12/1/93 Marshall Funds, Inc.
12/1/93 Marshall Government Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Intermediate Bond Fund FA,SR A1,B,C,D
12/1/93 Marshall Money Market Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Marshall Short-Term Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Tax-Free Money Market Fund FA,SR A1,B,C,D
12/1/93 Marshall Balanced Fund FA,SR A1,B,C,D
12/1/93 Marshall Equity Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Mid-Cap Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Value Equity Fund FA,SR A1,B,C,D
12/1/93 Marshal Short-Intermediate Tax-free Fund FA,SR A1,B,C,D
12/1/93 Money Market Management, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Obligations Trust
12/1/93 Government Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Prime Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Tax-Free Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Treasury Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Municipal Securities Income Trust
12/1/93 California Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Florida Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Maryland Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Michigan Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Income shares FA,SR,CSP A,B,C,D,E
12/1/93 Texas Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Cash Trust
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 The Planters Funds
12/1/93 Tennessee Tax-Free Bond Fund FA,SR A1,B,C,D
12/1/93 Portage Funds
12/1/93 Portage Government Money Market Fund SR C,D
12/1/93 Investment Shares SR C,D
12/1/93 Trust Shares SR C,D
12/1/93 RIMCO Monument Funds
12/1/93 RIMCO Monument Bond Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Prime Money Market Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Stock Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument U.S. Treasury Money
Market Fund FA,SR A,B,C,D
12/1/93 Signet Select Funds
12/1/93 Maryland Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Treasury Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Value Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Virginia Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Funds
12/1/93 The Shawmut Fixed Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth and Income Equity
Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Intermediate Government
Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Limited Term Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Prime Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Small Capitalization
Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut Municipal
Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut
Intermediate Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Municipal
Money Market Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Intermediate
Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds
12/1/93 The Starburst Government Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Government Money
Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds II
12/1/93 The Starburst Quality Income Fund FA,SR A,B,C,D
12/1/93 Tax-Free Instruments Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trademark Funds
12/1/93 Trademark Equity Fund FA,SR A,B,C,D
12/1/93 Trademark Government Income Fund FA,SR A,B,C,D
12/1/93 Trademark Kentucky Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Trademark Short-Intermediate
Government Fund FA,SR A,B,C,D
12/1/93 Trust for Financial Institutions
12/1/93 Government Qualifying Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Short-Term Government Qualifying
Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Money Market Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Short-Term U.S. Government
Securities FA,SR,CSP A,B,C,D,E
12/1/93 Trust for U.S. Treasury Obligations FA,SR,CSP A,B,C,D,E
12/1/93 Vulcan Funds
12/1/93 Vulcan Bond Fund FA,SR A1,B,C,D
12/1/93 Vulcan Stock Fund FA,SR A1,B,C,D
12/1/93 Vulcan Treasury Obligations Money
Market Fund FA,SR A1,B,C,D