[LOGO] FEDERATED INVESTORS
Liberty Equity
Income Fund, Inc.
9th Semi-Annual Report
September 30, 1995
Established 1986
EQUITY
President's Message
Dear Fellow Shareholder:
I am pleased to present the 9th Semi-Annual Report for Liberty Equity Income
Fund, Inc. which covers the six-month period from April 1, 1995, to September
30, 1995.
This report begins with an interview with the fund's portfolio
manager, Christopher H. Wiles, Vice President, Federated Advisers. Following
this interview, there are three items of shareholder interest: a complete
listing of the fund's holdings, a series of graphs showing investment
performance, and the fund's Financial Statements.
During the six-month reporting period covered by this report, fund assets
increased by 46% to stand at $259.3 million on September 30, 1995. This
impressive $82.6 million climb can be attributed to three factors: current
shareholders adding to their holdings, new investor accounts, and a healthy 14%
increase in the fund's share value.
Monthly dividends paid per share for the six-month reporting period
totaled:$0.19 for Class A Shares, $0.14 for Class B as well as Class C Shares,
and $0.18 for Fortress Shares.
The fund's holdings of above-average, good dividend-paying stocks consist of 60
issues across twelve industry sectors, and the fund has exposure outside the
U.S. in five issues. The structure of the fund is to have 65% of its assets in
common stocks and 35% in convertible securities. The average portfolio holding
amounts to approximately 2% of the fund's total assets.
Consistent with an extremely favorable stock market environment, Liberty Equity
Income Fund, Inc. recorded strong returns during the reporting period. Total
returns based on net asset value were: 16.20% for Class A Shares, 15.77% for
Class B Shares, 15.77% for Class C Shares, and 16.08% for Fortress Shares.*
Total returns included the fund's share price increase plus dividends paid.
As you will read in the interview with Chris Wiles, a recent report by
Morningstar, a leading mutual fund ranking organization, placed Liberty Equity
Income Fund, Inc. among the highest in returns among equity funds and among the
least risky during the most recent five-year period.
We trust you were pleased with the positive performance of Liberty Equity
Income Fund, Inc. As always, we welcome your comments and suggestions.
Very sincerely yours,
Richard B. Fisher
President
November 15, 1995
*Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the period (based on
offering price) for Class A Shares, Class B Shares, Class C Shares, and
Fortress Shares were 9.80%, 10.23%, 14.80%, and 13.92%, respectively
Investment Review
Christopher H. Wiles, CFA
Vice President
Federated Advisers
Q Can you comment on the stock market's extremely strong performance during the
reporting period?
A The S&P 500* was up 18.26% during the six-month reporting period covered by
this report. This performance can be attributed to the rapid decline in
interest rates and relatively strong corporate earnings.
Q How did Liberty Equity Income Fund, Inc. perform for its shareholders in
this environment?
A Liberty Equity Income Fund, Inc. was able to keep pace with the broader
market. Total returns based on net asset value were: 16.20% for Class A
Shares, 15.77% for Class B Shares, 15.77% for Class C Shares, and 16.08% for
Fortress Shares.** This performance is even more impressive when you consider
that the fund has a current yield at least 50% greater than the S&P 500 and
nearly 30% of its assets are in convertible securities.
* This index is unmanaged.
** Performance quoted reflects past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total returns for the
period (based on offering price) for Class A Shares, Class B Shares, Class
C Shares, and Fortress Shares were 9.80%, 10.23%, 14.80%, and 13.92%,
respectively.
Q Morningstar, a well-known independent mutual fund ranking organization,
recently reported that Liberty Equity Income Fund, Inc. ranked among the
least risky of all equity funds, while ranking among the highest in returns
over the most recent five-year period. Can you comment?
A For the five-year period ended September 30, 1995, Liberty Equity Income
Fund, Inc. ranked 55 out of 1059 equity funds when measured by
Morningstar's risk rating.* In addition, for the five-year period ended
September 30, 1995, the fund ranked 361 out of 1059 equity funds when
measured by Morningstar's total return rating.* Our goal is to continuously
offer investors competitive performance at the lowest level of risk possible.
Q What strategy is the primary influence on the fund's record of strong
returns at a lower than average level of risk?
A We focus on minimizing risk by not timing the market and by not making
sector bets. While security selection is emphasized to enhance returns, we
also use convertibles extensively for their attractive risk/reward
characteristics.
Q What is your sell discipline?
A Since we are sector neutral with the S&P 500, our rule is to
sell securities only when we have a better replacement within
the sector. Securities are not sold just because they are up or down a
specific amount; they are sold when we have superior replacements.
* Morningstar Risk measures a fundOs downside volatility relative to other
funds in its investment class. The average score for any class equals 1.00, so
that a fund with a score of 0.75, for example, has been only 75% as volatile
as the class average. To calculate this measure, Morningstar adds the
amounts by which a fund's monthly returns trail those of the 90-day Treasury
bill and divides that sum by the number of months in the rating period.
This risk ranking does not include the effect of a sales charge. For the
period ended September 30, 1995, the investment adviser waived fees.
Otherwise total return would have been lower. For the three-year period
ended September 30, 1995, Liberty Equity Income Fund, Inc. ranked 342 out of
1478 equity funds when measured by Morningstar's risk rating. In addition,
for the three-year period ended September 30, 1995, the fund ranked 644 out
of 1478 equity funds when measured by Morningstar's total return rating.
Q During the reporting period, what notable additions did you make to the
portfolio?
A Over the last six months, we've made several additions to the fund. Some of
our favorites include: H.J. Heinz (Common Stock), Boston Markets
(Convertible Bonds), IBM (Common Stock), Sandoz (Convertible Bonds),
Federated Department Stores (Convertible Bonds), and Conrail (Common Stock).
Q As we approach the end of 1995, what is your outlook for the market?
A One of the benefits of managing money in a very disciplined style is that
we don't have to try and forecast the market; we focus on bottom-up
security selection. But, obviously, we have had a great run in equities and
would not be surprised if we experienced some sort of pull back. If that is the
case, we believe that the defensive characteristics of Liberty Equity Income
Fund, Inc. will be rewarded.
Two Ways You May Seek to Invest for Success in
Liberty Equity Income Fund, Inc.
Initial Investment:
If you had made an initial investment of $9,000 in the Class A Shares of
Liberty Equity Income Fund, Inc. on 12/30/86, reinvested dividends and capital
gains, and didn't redeem any shares, your account would be worth $22,646 on
9/30/95. You would have earned an 11.12%* average annual total return for the
nine-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/95, the Class A Shares' average annual one-year, five-year, and
since inception (12/30/86) total returns were 14.19%, 16.04%, and 11.12%,
respectively. Class B Shares' average annual one-year and since inception
(9/28/94) total returns were 14.37% and 15.56%, respectively. Class C Shares'
average annual one-year and since inception (5/4/93) total returns were 19.08%
and 12.05%, respectively. Fortress Shares average annual one-year and since
inception (11/13/93) total returns were 18.54% and 8.97%, respectively.**
GRAPHIC REPRESENTATION "A" OMITTED. SEE APPENDIX.
* Total return represents the change in the value of an investment after rein-
vesting all income and capital gains, and takes into account the 5.5% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total return stated takes into account the 5.5% sales charge for
Class A Shares, the 5.5% contingent deferred sales charge on Class B
Shares, the 1% contingent deferred sales charge on Class C Shares and the
1% sales charge and 1% contingent deferred sales charge for Fortress
Shares.
Liberty Equity Income Fund, Inc.
One Step at a Time:
$1,000 invested each year for nine years (reinvesting all dividends and capital
gains) grew to $16,553.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Liberty
Equity Income Fund, Inc. on 12/30/86, reinvested your dividends and capital
gains, and didn't redeem any shares, you would have invested only $9,000, but
your account would have reached a total value of $16,553* by 9/30/95. You would
have earned an average annual total return of 12.58%.
A practical investment plan helps you pursue growth and income through common
stocks and convertible securities. Through systematic investing, you buy shares
on a regular basis and reinvest all earnings. This investment plan works for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time and compounding to work!
GRAPHIC REPRESENTATION "B" OMITTED. SEE APPENDIX.
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares
at various prices, investors can purchase more shares at lower prices, and
all accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
Liberty Equity Income Fund, Inc.
-
Hypothetical Investor Profile: Investing for Growth
Eliot and Helen Barnes are a fictitious couple who share with many other
investors the goal of growth from good dividend-paying stocks.
Eliot is an engineer working for a major corporation. Helen teaches school. On
December 30, 1986, the Barnes invested $10,000 from maturing CD's in Liberty
Equity Income Fund, Inc.
As this chart shows, over nine years, their original $10,000 investment in the
Class A Shares has grown to $25,162. This represents an 11.12%, minus any
applicable sales charge and/or contingent deferred sales charge, average annual
total return. For the Barnes, that means dependable performance from good
dividend-paying stocks in 16 industry sectors that helps their money grow.
GRAPHIC REPRESENTATION "C" OMITTED.
This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Liberty Equity Income Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--64.7%
- ------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.1%
---------------------------------------------------------------------------------
35,000 McGraw-Hill Cos., Inc. $ 2,861,252
--------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--1.7%
---------------------------------------------------------------------------------
140,000 Ford Motor Co. 4,357,500
--------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--8.2%
---------------------------------------------------------------------------------
70,000 Avon Products, Inc. 5,022,500
---------------------------------------------------------------------------------
80,000 Campbell Soup Co. 4,020,000
---------------------------------------------------------------------------------
100,000 Heinz (H.J.) Co. 4,575,000
---------------------------------------------------------------------------------
90,000 Philip Morris Cos., Inc. 7,515,000
--------------------------------------------------------------------------------- --------------
Total 21,132,500
--------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--1.9%
---------------------------------------------------------------------------------
90,000 Gannett Co., Inc. 4,916,250
--------------------------------------------------------------------------------- --------------
ELECTRONIC TECHNOLOGY--6.3%
---------------------------------------------------------------------------------
60,000 International Business Machines Corp. 5,662,500
---------------------------------------------------------------------------------
80,000 Lockheed Martin Corp. 5,370,000
---------------------------------------------------------------------------------
60,000 United Technologies Corp. 5,302,500
--------------------------------------------------------------------------------- --------------
Total 16,335,000
--------------------------------------------------------------------------------- --------------
ENERGY MINERALS--4.8%
---------------------------------------------------------------------------------
65,000 Amoco Corp. 4,168,125
---------------------------------------------------------------------------------
65,000 Exxon Corp. 4,696,250
---------------------------------------------------------------------------------
200,000 YPF Sociedad Anonima, ADR 3,600,000
--------------------------------------------------------------------------------- --------------
Total 12,464,375
--------------------------------------------------------------------------------- --------------
FINANCE--7.5%
---------------------------------------------------------------------------------
50,000 Chemical Banking Corp. 3,043,750
---------------------------------------------------------------------------------
50,000 First Interstate Bancorp 5,037,500
---------------------------------------------------------------------------------
70,000 First Union Corp. 3,570,000
---------------------------------------------------------------------------------
190,000 Great Western Financial Corp. 4,512,500
---------------------------------------------------------------------------------
</TABLE>
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
---------------------------------------------------------------------------------
95,000 Meditrust, REIT $ 3,289,375
--------------------------------------------------------------------------------- --------------
Total 19,453,125
--------------------------------------------------------------------------------- --------------
HEALTH TECHNOLOGY--6.9%
---------------------------------------------------------------------------------
60,000 American Home Products Corp. 5,092,500
---------------------------------------------------------------------------------
80,000 Bristol-Myers Squibb Co. 5,830,000
---------------------------------------------------------------------------------
50,000 Johnson & Johnson 3,706,250
---------------------------------------------------------------------------------
60,000 Merck & Co., Inc. 3,360,000
--------------------------------------------------------------------------------- --------------
Total 17,988,750
--------------------------------------------------------------------------------- --------------
INDUSTRIAL SERVICES--1.3%
---------------------------------------------------------------------------------
120,000 WMX Technologies, Inc. 3,420,000
--------------------------------------------------------------------------------- --------------
NON-ENERGY MINERALS--0.8%
---------------------------------------------------------------------------------
35,000 Phelps Dodge Corp. 2,191,875
--------------------------------------------------------------------------------- --------------
PROCESS INDUSTRIES--3.8%
---------------------------------------------------------------------------------
70,000 Du Pont (E.I.) de Nemours & Co. 4,812,500
---------------------------------------------------------------------------------
75,000 Eastman Chemical Co. 4,800,000
--------------------------------------------------------------------------------- --------------
Total 9,612,500
--------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--3.5%
---------------------------------------------------------------------------------
140,000 Dresser Industries, Inc. 3,342,500
---------------------------------------------------------------------------------
90,000 Johnson Controls, Inc. 5,692,500
--------------------------------------------------------------------------------- --------------
Total 9,035,000
--------------------------------------------------------------------------------- --------------
RETAIL TRADE--4.1%
---------------------------------------------------------------------------------
120,000 Penney (J.C.) Co., Inc. 5,955,000
---------------------------------------------------------------------------------
130,000 Sears, Roebuck & Co. 4,793,750
--------------------------------------------------------------------------------- --------------
Total 10,748,750
--------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.2%
---------------------------------------------------------------------------------
45,600 Consolidated Rail Corp. 3,135,000
--------------------------------------------------------------------------------- --------------
UTILITIES--11.6%
---------------------------------------------------------------------------------
70,000 AT&T Corp. 4,602,500
---------------------------------------------------------------------------------
</TABLE>
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
---------------------------------------------------------------------------------
40,000 BellSouth Corp. $ 2,925,000
---------------------------------------------------------------------------------
100,000 Enron Corp. 3,350,000
---------------------------------------------------------------------------------
90,000 Enron Global Power & Pipelines, L.L.C. 2,058,750
---------------------------------------------------------------------------------
200,000 National Power Co. PLC, ADR 2,900,000
---------------------------------------------------------------------------------
110,000 NIPSCO Industries, Inc. 3,836,250
---------------------------------------------------------------------------------
140,000 Peco Energy Co. 4,007,500
---------------------------------------------------------------------------------
60,000 SBC Communications, Inc. 3,300,000
---------------------------------------------------------------------------------
100,000 Sonat, Inc. 3,200,000
--------------------------------------------------------------------------------- --------------
Total 30,180,000
--------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $144,904,483) 167,831,877
--------------------------------------------------------------------------------- --------------
CONVERTIBLE PREFERRED STOCKS--18.9%
- ------------------------------------------------------------------------------------------------
CONSUMER DURABLES--2.0%
---------------------------------------------------------------------------------
130,000 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 1,706,250
---------------------------------------------------------------------------------
110,000 Time Warner Financing, PERCS, Series HAS, $1.24 3,575,000
--------------------------------------------------------------------------------- --------------
Total 5,281,250
--------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--2.9%
---------------------------------------------------------------------------------
1,100,000 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 7,425,000
--------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--1.4%
---------------------------------------------------------------------------------
150,000 Times Mirror Co., Conv. Pfd., Series B, $1.37 3,618,750
--------------------------------------------------------------------------------- --------------
ENERGY MINERALS--1.5%
---------------------------------------------------------------------------------
75,000 Valero Energy Corp., Conv. Pfd., $3.13 3,862,500
--------------------------------------------------------------------------------- --------------
FINANCE--2.9%
---------------------------------------------------------------------------------
85,000 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 4,653,750
---------------------------------------------------------------------------------
60,000 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 2,895,000
--------------------------------------------------------------------------------- --------------
Total 7,548,750
--------------------------------------------------------------------------------- --------------
NON-ENERGY MINERALS--1.2%
---------------------------------------------------------------------------------
60,000 Reynolds Metals Co., PRIDES, $3.30 3,105,000
--------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
CONVERTIBLE PREFERRED STOCKS--CONTINUED
- ------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--3.8%
---------------------------------------------------------------------------------
50,000 Case Corp., Conv. Pfd., Series A, $4.50 $ 4,803,150
---------------------------------------------------------------------------------
341,500 (a) Westinghouse Electric Corp., PEPS, Series C, $1.30 5,169,286
--------------------------------------------------------------------------------- --------------
Total 9,972,436
--------------------------------------------------------------------------------- --------------
TECHNOLOGY SERVICES--2.3%
---------------------------------------------------------------------------------
90,000 General Motors Corp., Conv. Pfd., Series C (GME), $3.25 5,838,750
--------------------------------------------------------------------------------- --------------
UTILITIES--0.9%
---------------------------------------------------------------------------------
50,000 (a) Cointel, Telefonica de Argentina SA, PRIDES, $5.04 2,437,500
--------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $46,428,799) 49,089,936
--------------------------------------------------------------------------------- --------------
CONVERTIBLE BONDS--12.3%
- ------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.8%
---------------------------------------------------------------------------------
$ 9,000,000 Boston Chicken, Inc., Conv. LYON, .08% accrual, 6/1/2015 2,283,750
--------------------------------------------------------------------------------- --------------
ELECTRONIC TECHNOLOGY--4.0%
---------------------------------------------------------------------------------
3,000,000 3Com Corp., Conv. Bond, 10.25%, 11/1/2001 4,685,490
---------------------------------------------------------------------------------
5,500,000 VLSI Technology, Conv. Bond, 8.25%, 10/1/2005 5,651,250
--------------------------------------------------------------------------------- --------------
Total 10,336,740
--------------------------------------------------------------------------------- --------------
ENERGY MINERALS--1.5%
---------------------------------------------------------------------------------
1,300,000 Pennzoil Co., Conv. Deb., 6.50%, 1/15/2003 1,563,250
---------------------------------------------------------------------------------
2,000,000 Pennzoil Co., Conv. Deb., 6.50%, 1/15/2003 2,432,500
--------------------------------------------------------------------------------- --------------
Total 3,995,750
--------------------------------------------------------------------------------- --------------
FINANCE--1.8%
---------------------------------------------------------------------------------
4,000,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 4,568,800
--------------------------------------------------------------------------------- --------------
HEALTH TECHNOLOGY--1.6%
---------------------------------------------------------------------------------
5,000,000 (a) Sandoz Capital BVI Ltd., Conv. Bond, 2.00%, 10/6/2002 4,058,500
--------------------------------------------------------------------------------- --------------
PROCESS INDUSTRIES--1.6%
---------------------------------------------------------------------------------
2,000,000 (a)Riverwood International Corp., Conv. Sub. Note, 6.75%, 9/15/2003 2,712,500
---------------------------------------------------------------------------------
</TABLE>
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- --------------------------------------------------------------------------------- --------------
CONVERTIBLE BONDS--CONTINUED
- ------------------------------------------------------------------------------------------------
PROCESS INDUSTRIES--CONTINUED
---------------------------------------------------------------------------------
$ 1,000,000 (a)Riverwood International Corp., Conv. Sub. Note, 6.75%, 9/15/2003 $ 1,356,250
--------------------------------------------------------------------------------- --------------
Total 4,068,750
--------------------------------------------------------------------------------- --------------
RETAIL TRADE--1.0%
---------------------------------------------------------------------------------
2,500,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 2,571,950
--------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $28,867,736) 31,884,240
--------------------------------------------------------------------------------- --------------
(C) REPURCHASE AGREEMENT--1.9%
- ------------------------------------------------------------------------------------------------
4,965,000 J.P. Morgan & Co., Inc., 6.48%, dated 9/29/1995, due 10/2/1995
(AT AMORTIZED COST) 4,965,000
--------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $225,166,018)(B)(D) $ 253,771,053
--------------------------------------------------------------------------------- --------------
</TABLE>
(a) Restricted Securities--Investments in securities not registered under the
Securities Act of 1933. At the end of the period, these amounted to 6.1% of
net assets.
(b) Includes Advanstar Trust Certificates which have been assigned a zero value
and zero identified cost.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreements is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $225,166,018.
The net unrealized appreciation of investments on a federal tax basis
amounts to $28,605,035 which is comprised of $30,531,573 appreciation and
$1,926,538 depreciation at September 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($259,267,253) at September 30, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depositary Receipt
LYON--Liquid Yield Option Note
PEPS--Participating Equity Preferred Stock
PERCS--Preferred Equity Redemption Cumulative Stock
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
SA--Support Agreement
STRYPES--Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
September 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $225,166,018) $253,771,053
- ---------------------------------------------------------------------------------------------------
Cash 2,626,855
- ---------------------------------------------------------------------------------------------------
Income receivable 820,583
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 9,535,875
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 1,351,536
- --------------------------------------------------------------------------------------------------- -----------
Total assets 268,105,902
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $8,393,478
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 87,697
- ----------------------------------------------------------------------------------------
Income distribution payable 212,555
- ----------------------------------------------------------------------------------------
Accrued expenses 144,919
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 8,838,649
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 19,702,697 shares outstanding $259,267,253
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $227,559,163
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in
foreign currencies 28,605,035
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 2,207,132
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 895,923
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $259,267,253
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($158,309,270 / 12,031,024 shares outstanding) $13.16
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $13.16)* $13.93
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (100.00/100 of $13.16)** $13.16
- --------------------------------------------------------------------------------------------------- -----------
Fortress Shares:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($42,739,993 / 3,248,086 shares outstanding) $13.16
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $13.16)* $13.29
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $13.16)** $13.03
- --------------------------------------------------------------------------------------------------- -----------
Class C Shares:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($36,906,436 / 2,804,609 shares outstanding) $13.16
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/100.00 of $13.16)* $13.16
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $13.16)** $13.03
- --------------------------------------------------------------------------------------------------- -----------
Class B Shares:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($21,311,554 / 1,618,978 shares outstanding) $13.16
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/100.00 of $13.16)* $13.16
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $13.16)** $12.44
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "How to Purchase Shares" or "What Shares Cost" in the Prospectus.
**See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended September 30, 1995 (unaudited)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $31,170) $ 3,557,179
- ----------------------------------------------------------------------------------------------------
Interest 1,035,329
- ---------------------------------------------------------------------------------------------------- ------------
Total income 4,592,508
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $ 633,915
- ---------------------------------------------------------------------------------------
Administrative personnel and services fees 107,500
- ---------------------------------------------------------------------------------------
Custodian fees 18,278
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 131,114
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 6,405
- ---------------------------------------------------------------------------------------
Auditing fees 9,333
- ---------------------------------------------------------------------------------------
Legal fees 7,686
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 51,876
- ---------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 47,959
- ---------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 123,655
- ---------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 47,566
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 159,099
- ---------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 47,959
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 41,218
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 15,855
- ---------------------------------------------------------------------------------------
Share registration costs 41,724
- ---------------------------------------------------------------------------------------
Printing and postage 62,403
- ---------------------------------------------------------------------------------------
Insurance premiums 3,843
- ---------------------------------------------------------------------------------------
Taxes 5,124
- ---------------------------------------------------------------------------------------
Miscellaneous 1,281
- --------------------------------------------------------------------------------------- -----------
Total expenses 1,563,793
- ---------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $ (237,680)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (25,456)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Fortress Shares (3,837)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (3,297)
- --------------------------------------------------------------------------- ----------
Total waivers (270,270)
- --------------------------------------------------------------------------------------- -----------
Net expenses 1,293,523
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 3,298,985
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 9,168,178
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currencies 18,954,709
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and foreign currency transactions 28,122,887
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 31,421,872
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------
Net investment income $ 3,298,985 $ 6,125,158
- ---------------------------------------------------------------------
Net realized gain (loss) on investments ($9,168,178 net gain and
$1,981,170 net loss, respectively, as computed
for federal tax purposes) 9,168,178 (5,318,671)
- ---------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments
and translation of assets and liabilities in
foreign currencies 18,954,709 11,980,000
- --------------------------------------------------------------------- ----------------------- ------------------
Change in net assets resulting from operations 31,421,872 12,786,487
- --------------------------------------------------------------------- ----------------------- ------------------
NET EQUALIZATION CREDITS (DEBITS)-- 236,800 129,755
- --------------------------------------------------------------------- ----------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------
Dividends from net investment income:
- ---------------------------------------------------------------------
Class A Shares (1,998,123) (4,061,012)
- ---------------------------------------------------------------------
Fortress Shares (551,858) (1,195,855)
- ---------------------------------------------------------------------
Class C Shares (385,815) (977,144)
- ---------------------------------------------------------------------
Class B Shares (159,645) (48,850)
- --------------------------------------------------------------------- ----------------------- ------------------
Change in net assets resulting from distributions to
shareholders (3,095,441) (6,282,861)
- --------------------------------------------------------------------- ----------------------- ------------------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT
INCOME)--
- ---------------------------------------------------------------------
Proceeds from sale of shares 67,771,964 77,783,595
- ---------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 2,038,211 3,807,006
- ---------------------------------------------------------------------
Cost of shares redeemed (18,936,187) (38,700,929)
- --------------------------------------------------------------------- ----------------------- ------------------
Change in net assets resulting from share transactions 50,873,988 42,889,672
- --------------------------------------------------------------------- ----------------------- ------------------
Change in net assets 79,437,219 49,523,053
- ---------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------
Beginning of period 179,830,034 130,306,981
- --------------------------------------------------------------------- ----------------------- ------------------
End of period (including undistributed net investment income of
$895,923 and $455,579, respectively) $ 259,267,253 $ 179,830,034
- --------------------------------------------------------------------- ----------------------- ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
SEPTEMBER 30, YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1995 1994 1993 1992 1991 1990 1989
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.50 $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.21 0.49 0.43 0.55 0.69 0.84 0.91 0.89
- -------------------------
Net realized and
unrealized gain (loss)
on investments 1.64 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59
- ------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 1.85 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.19) (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86)
- -------------------------
Distributions in excess
of net investment
income 0.00 0.00 0.00 0.00 0.00 0.00 (0.41 (c) 0.00
- -------------------------
Distributions from net
realized gain on
investment transactions 0.00 0.00 0.00 0.00 0.00 0.00 (0.52) 0.00
- ------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.19) (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86)
- ------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 13.16 $ 11.50 $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84
- ------------------------- ------ --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (d) 16.20% 8.31% 5.29% 18.98% 21.19% 8.95% (3.19%) 28.25%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.00%* 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77%
- -------------------------
Net investment income 3.32%* 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02%
- -------------------------
Expense waiver/
reimbursement (e) 0.24%* 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25%
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $158,309 $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306
- -------------------------
Portfolio turnover 46% 91% 43% 79% 115% 31% 54% 49%
- -------------------------
<CAPTION>
<S> <C> <C>
1988(b) 1987(a)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.18 $ 10.00
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.72 0.23
- -------------------------
Net realized and
unrealized gain (loss)
on investments (0.81) 0.18
- ------------------------- ----------- -----------
Total from investment
operations (0.09) 0.41
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.72) (0.23)
- -------------------------
Distributions in excess
of net investment
income 0.00 0.00
- -------------------------
Distributions from net
realized gain on
investment transactions (0.15) 0.00
- ------------------------- ----------- -----------
Total distributions (0.87) (0.23)
- ------------------------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 9.22 $ 10.18
- ------------------------- ----------- -----------
TOTAL RETURN (d) (0.54%) 3.63%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.16%* 1.22%*
- -------------------------
Net investment income 8.32%* 6.93%*
- -------------------------
Expense waiver/
reimbursement (e) 0.86%* 0.28%*
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted)
$8,895 $10,866
- -------------------------
Portfolio turnover 41% 24%
- -------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 30, 1986 (date of initial
public investment) to April 30, 1987.
(b) For the period from May 1, 1987 to March 31, 1988. (Effective November 1,
1987, the Fund changed its fiscal year-end from April 30 to March 31.)
(c) Distributions in excess of net investment was a result of certain books and
tax timing differences. This distribution did not represent a return of
capital for federal income tax purposes.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) PERIOD ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.50 $ 11.24
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.16 0.19
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.64 0.26
- ------------------------------------------------------------------ ------- -------
Total from investment operations 1.80 0.45
- ------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.14) (0.19)
- ------------------------------------------------------------------ ------- -------
NET ASSET VALUE, END OF PERIOD $ 13.16 $ 11.50
- ------------------------------------------------------------------ ------- -------
TOTAL RETURN (b) 15.77% 4.14%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 1.80%* 1.80%*
- ------------------------------------------------------------------
Net investment income 2.55%* 3.42%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.19%* 0.47%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $21,312 $6,072
- ------------------------------------------------------------------
Portfolio turnover 46% 91%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 27, 1994 (date of initial
public offering) to March 31, 1995.
(b) Based on net asset value, which does not reflect sales charge or contingent
deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) MARCH 31,
SEPTEMBER 30, 1995 1995 1994(a)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.50 $ 11.06 $ 10.76
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.16 0.37 0.34
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.64 0.44 0.28
- -------------------------------------------------------------------- ------- --------- -----------
Total from investment operations 1.80 0.81 0.62
- --------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.14) (0.37) (0.32)
- -------------------------------------------------------------------- ------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.16 $ 11.50 $ 11.06
- -------------------------------------------------------------------- ------- --------- -----------
TOTAL RETURN (b) 15.77% 7.52% 5.66%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 1.77%* 1.76% 1.79%*
- --------------------------------------------------------------------
Net investment income 2.56%* 3.25% 2.99%*
- --------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.22%* 0.36% 0.89%*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $36,906 $30,189 $24,632
- --------------------------------------------------------------------
Portfolio turnover 46% 91% 43%
- --------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 3, 1993 (date of initial public
offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect sales charge or contingent
deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Financial Highlights--Fortress Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
(UNAUDITED) MARCH 31,
SEPTEMBER 30, 1995 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.51 $ 11.06 $ 10.74
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.19 0.42 0.17
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.64 0.46 (0.68)
- -------------------------------------------------------------------- ------- --------- -----------
Total from investment operations 1.83 0.88 (0.51)
- --------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.18) (0.43) (0.17)
- -------------------------------------------------------------------- ------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.16 $ 11.51 $ 11.06
- -------------------------------------------------------------------- ------- --------- -----------
TOTAL RETURN (b) 16.08% 8.05% (4.43%)
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 1.27%* 1.24% 1.29%*
- --------------------------------------------------------------------
Net investment income 3.07%* 3.79% 3.71%*
- --------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.22%* 0.36% 0.89%*
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $42,740 $34,886 $21,010
- --------------------------------------------------------------------
Portfolio turnover 46% 91% 43%
- --------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 12, 1993 (date of initial
public offering) to March 31, 1994.
(b) Based on net asset value, which does not reflect sales charge or contingent
deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
September 30, 1995 (unaudited)
1. ORGANIZATION
Liberty Equity Income Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund offers four classes of shares: Class A
Shares, Fortress Shares, Class C Shares and Class B Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. Withholding taxes on foreign
dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. At March 31,
1995, the Fund, for federal tax purposes, had a capital loss carryforward
of $3,623,545, which will reduce the Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted
by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 2000 ($1,642,375), and 2001 ($1,981,170).
Additionally, net capital losses of $3,189,323 attributable
to security transactions incurred after October 31, 1994 are treated as
arising on the first day of the Fund's next taxable year.
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at September 30,
1995 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Cointel, Telefonica de Argentina SA, PRIDES 4/11/95-6/21/95 $ 2,397,870
Riverwood International Corp., Conv. Sub. Deb. 9/17/93 $ 2,000,000
Riverwood International Corp., Conv. Sub. Deb. 3/15/94 $ 1,110,000
Sandoz Capital BVI Ltd., Conv. Bond 9/28/95 $ 4,058,500
Westinghouse Electric Corp., Series C 3/22/94-8/23/95 $ 4,887,063
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
3. CAPITAL STOCK
At September 30, 1995, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NO. OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A 500,000,000
Fortress 500,000,000
Class C 500,000,000
Class B 500,000,000
-----------------
Total shares authorized 2,000,000,000
-----------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,388,066 $ 42,145,061 3,771,742 $ 41,785,909
- -------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 107,357 1,331,931 236,025 2,605,506
- -------------------------------------------------------
Shares redeemed (911,024) (11,157,651) (2,214,569) (24,461,004)
- ------------------------------------------------------- ---------- -------------- ----------- --------------
Net change resulting from Class A
share transactions 2,584,399 $ 32,319,341 1,793,198 $ 19,930,411
- ------------------------------------------------------- ---------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 422,015 $ 5,239,124 1,647,385 $ 18,354,458
- -----------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 31,112 387,774 66,290 732,706
- -----------------------------------------------------------
Shares redeemed (237,268) (2,913,600) (581,721) (6,411,353)
- ----------------------------------------------------------- --------- ------------- ---------- -------------
Net change resulting from Fortress
share transactions 215,859 $ 2,713,298 1,131,954 $ 12,675,811
- ----------------------------------------------------------- --------- ------------- ---------- -------------
</TABLE>
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 485,368 $ 6,050,941 1,047,591 $ 11,663,392
- -----------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 14,482 179,690 38,565 426,333
- -----------------------------------------------------------
Shares redeemed (319,302) (3,940,378) (689,528) (7,619,912)
- ----------------------------------------------------------- --------- ------------- ---------- -------------
Net change resulting from Class C
share transactions 180,548 $ 2,290,253 396,628 $ 4,469,813
- ----------------------------------------------------------- --------- ------------- ---------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,153,980 $ 14,336,838 542,872 $ 5,979,836
- ---------------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 11,064 138,816 3,850 42,461
- ---------------------------------------------------------
Shares redeemed (73,859) (924,558) (18,929) (208,660)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from Class B
share transactions 1,091,185 $ 13,551,096 527,793 $ 5,813,637
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from
share transactions 4,071,991 $ 50,873,988 3,849,573 $ 42,889,672
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
(a) For the period September 27, 1994 (date of initial public offering) to March
31, 1995.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/ or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Liberty Equity Income Fund, Inc.
- --------------------------------------------------------------------------------
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp., the principal distributor, from the net
assets of the Fund to finance activities intended to result in the sale of the
Fund's Fortress Shares, Class C Shares and Class B Shares. The Plan provides
that the Fund may incur distribution expenses according to the following
schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
% OF AVG. DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Fortress 0.25 of 1%
Class C 0.75 of 1%
Class B 0.75 of 1%
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of daily average net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive a portion of its fee. FSS can modify or terminate
this voluntarily waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 145,362,746
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 93,881,672
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO] FEDERATED FUNDS
Where Experts Invest
Federated Securities Corp. is the distributor of the fund.
A Subsidiary of Federated Investors
Pittsburgh, PA 15222-3779
530461102
530461409
530461201
530461300
LIBERTY EQUITY INCOME FUND, INC. APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of $9,000 in
Liberty Equity Income Fund, Inc. - Class A Shares on December 30, 1986, would
have grown to $22,646 by September 30, 1995. The "x" axis reflects the cost of
investment, the "y" axis reflects computation periods from 1986 to 1995, and the
right margin reflects a total investment range from $0 to $25,000. The chart
further indicates the ending market value attributable to principal, as well as
the ending market value attributable to capital gains and reinvested dividends.
B. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that $1,000 invested each year for 9 years
in Liberty Equity Income Fund, Inc. - Class A Shares beginning on December 30,
1986, would have grown to $16.553 by September 30, 1995. The "x" axis reflects
the cost of investment, the "y" axis reflects computation periods from 1986 to
1995, and the right margin reflects a total investment range from $0 to $18,000.
The chart further indicates the ending market value attributable to principal,
as well as the ending market value attributable to capital gains and reinvested
dividends.
C. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an initial investment of $10,000
invested in Liberty Equity Income Fund, Inc. - Class A Shares on December 30,
1986, would have grown to $25,162 by September 30, 1995. The "x" axis reflects
the cost of investment, the "y" axis reflects computation periods from 1986 to
1995, and the right margin reflects a total investment range from $0 to $27,000.
The chart further indicates the ending market value attributable to principal,
as well as the ending market value attributable to capital gains and reinvested
