Federated Investors
Liberty
Equity
Income
Fund, Inc.
9th Annual Report
March 31, 1995
Established 1986
EQUITY
President's Message
Dear Fellow Shareholder:
I am pleased to present the 9th Annual Report for Liberty Equity Income Fund,
Inc., established in 1986.
This report covers the 12-month period from April 1, 1994 to March 31, 1995.
The report contains an interview with the fund's portfolio manager, Christopher
H. Wiles, Vice President of Federated Advisers. Following the interview is a
series of investment record performance charts, a complete listing of the
fund's stocks and bonds, and its financial statements.
During the past year, investors added nearly $50 million to the fund's assets.
As a result, the fund's net assets totaled $179.8 million at the period's end.
The fund has over 11,500 shareholders who invest in Liberty Equity Income Fund,
Inc. to gain ownership of good dividend-paying stocks selected for their
above-average yield and growth potential.
A total of 62 companies across 17 industry sectors were included in the fund's
highly diversified portfolio of stocks and convertible securities. Among the
fund's holdings are such well-known names as Lockheed Martin, Sears, Campbells
Soup, Westinghouse, Johnson Controls, American Home Products, Avon, Johnson &
Johnson and Equitable Cos., Inc.
The fund's net asset value has increased. On April 1, 1994, the share price
based on net asset value for Class A Shares was $11.06 compared to $11.50 on
March 31, 1995. Total return, based on net asset value, for Class A Shares for
this same period was 8.31%.*
Since the inception of Class B Shares (September 27, 1994) to March 31, 1995,
share price based on net asset value increased from $11.24 to $11.50.
Cumulative total return, based on net asset value, for Class B Shares for this
same period was 4.14%.*
*Performance quoted represents 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, based on
offering price, for Class A Shares and Class B Shares were 2.38% and (1.48)%,
respectively.
On April 1, 1994, the share price based on net asset value for Class C Shares
was $11.06 compared to $11.50 on March 31, 1995. Total return, based on net
asset value, for Class C Shares for the period was 7.52%.*
The share price based on net asset value for Fortress Shares was $11.06 on
April 1, 1994 compared to $11.51 on March 31, 1995. Total return, based on net
asset value, for Fortress Shares for the period was 8.05%.*
Thank you for your continued confidence in this fund. I encourage shareholders
to consider adding to their accounts. Any questions or comments you may have
are most welcome.
Very sincerely yours,
Richard B. Fisher
President
May 15, 1995
*Performance quoted represents 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, based on
offering price, for Class C Shares and Fortress Shares were 6.49% and 5.97%,
respectively.
Investment Review
Christopher H. Wiles, CFA
Vice President,
Federated Advisers
How did the fund perform over the last 12 months?
For the year ending March 31, 1995, Liberty Equity Income Fund, Inc.'s Class A
Shares had a total return of 8.31%, based on net asset value, versus a very
strong S&P 500 Index* return of 15.54%. While the fund trailed the S&P 500, it
performed in line with the average equity income fund tracked by Lipper
Analytical Services, which had an 8.76% total return.**
There have been some adjustments to the fund recently. What were these changes,
and why were they made?
We noticed that the fund's strong performance in 1993 and less than
satisfactory performance in 1994 were both attributable to a high degree of
interest rate sensitivity. Based on our desire to manage Liberty Equity Income
Fund, Inc. as a low-risk equity fund, we felt it imperative to lower the fund's
interest rate sensitivity. We have subsequently eliminated our holdings in
high-yield bonds and have reduced our holdings in real estate investment
trusts, financial securities and utilities. These proceeds were then added to
sectors where we were underweight, such as consumer services, consumer
non-durables, health care and technology.
As the following table shows, we are sector neutral:
<TABLE>
<CAPTION>
S&P Relative
Sector Weights (As of 3/31/95) LEIF 500 Weight
<S> <C> <C> <C>
Commercial Services 1.32% 1.26% 104.37%
Consumer Durables 4.35 4.11 103.88
Consumer Non-Durables 10.41 11.48 93.94
Consumer Services 2.23 4.31 91.94
Electronic Technology 8.37 9.01 90.12
Energy Minerals 9.01 9.03 99.53
Finance 10.37 11.17 92.48
Health Services 1.11 1.02 103.90
Health Technology 7.69 8.28 93.36
Industrial Services 1.56 1.43 110.47
Non-Energy Materials 0.95 2.29 116.74
Process Industries 5.07 5.86 87.84
Producer Manufacturing 10.02 7.88 98.05
Retail Trade 4.94 5.95 82.96
Technology Services 1.92 2.25 85.95
Transportation 1.25 1.65 76.05
Utilities 13.90 13.03 107.45
</TABLE>
* This index is unmanaged.
** Lipper averages do not include the effect of sales charges.
Why is a ``sector-neutral'' philosophy of investment management favorable for
the shareholders of the fund?
The use of this approach means that shareholders can rest assured they are not
in a fund that takes big sector bets. A fund's goal might be to outperform an
index, but the more a portfolio varies from the index, the more risk a fund is
taking. We have distinct guidelines about how much of Liberty Equity Income
Fund, Inc. is invested in any one sector, such as technology or health
services, relative to the S&P 500. The guidelines for the fund involve holding
no more than 2 times the S&P 500 weight and no less than 50% of the index
weight in any one economic sector. Shareholders can have confidence that this
investment approach is used consistently to lower their fund's sector risk.
Can you reiterate the fund's long-term investment philosophy?
The fund is designed for conservative investors seeking broad market exposure,
above-average current yield, and below-average risk. Risk is managed not by
market timing but by limiting sector exposure. This approach to industrial
sectors allows management to focus our time and energy on security selection.
We look for companies with management integrity, strong cash flows, sustainable
return on equity, and the ability and willingness to grow their dividends.
What are your future plans for the fund?
After our recent efforts to lower the fund's interest rate sensitivity, we do
not foresee any major investment changes. However, we will continue to monitor
our current portfolio holdings of 81.9% stocks and 12.6% convertibles with an
eye to replacing any holdings that do not measure up.
What benefits have long-term shareholders in the fund received?
Over the five years ending March 31, 1995, shareholders in Liberty Equity
Income Fund, Inc.'s Class A Shares have experienced an annualized total return
of 12.37%, based on net asset value, which places the fund 6th out of 54 equity
income funds ranked by Lipper Analytical Services.* The fund was also ranked
23rd out of 933 equity funds by Morningstar - one of the lowest Morningstar
risk ratings for the five-year period ended March 31, 1995. In addition, the
fund carries a four-star overall Morningstar rating. **
* Lipper rankings do not include the effect of sales charges. For the oneand
three-year periods ended March 31, 1995, among equity income funds, the fund
ranked 58th out of 102 and 22nd out of 66, respectively.
** Morningstar, Inc. is an independent fund rating service, which uses a
five-star system to measure risk-adjusted total return. Four stars means the
fund ranked in the top 32.5% of all investment companies. Ratings are based on
past performance and subject to change every two weeks. For the three-year
period ended March 31, 1995, the fund ranked 34th out of 933 equity funds.
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 $19,489 on
3/31/95. You would have earned a 9.81%* average annual total return for the
9-year investment life span.
One key to investing wisely is to reinvest all distributions in Fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/95, the Class A Shares' average annual one-year, five-year, and
since inception on 12/30/86 total returns were 2.38%, 11.11%, and 9.81%,
respectively. Class B Shares' total return since inception on 9/27/94 was
-1.48%. Class C Shares' average annual one-year and since inception on 5/3/93
total returns were 6.49% and 6.91%. Fortress Shares average annual one-year and
since inception on 11/12/93 total returns were 5.97% and 0.90%.
SEE APPENDIX A1
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 5.5% sales
load applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Liberty Equity Income Fund, Inc.
One Step at a Time:
$1,000 invested each year for 9 years (reinvesting all dividends and capital
gains) grew to $14,246.
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 $14,246* by 3/31/95. You would
have earned an average annual total return of 10.54%.
A practical investment plan helps you pursue growth and income through common
stocks and convertible securities. Through systematic investing, you buy shares
on a regular basis and reinvest all earnings. This investment plan works for
you when you invest only $1,000 annually. You can take it one step at a time.
Put time and compounding to work!
SEE APPENDIX A2
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices, and all accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regard- less of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
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 8 years, their original $10,000 investment in the
Class A Shares has grown to $21,655. This represents a 9.81% average annual
total return. For the Barnes, that means dependable performance from good
dividend-paying stocks in 17 industry sectors that helps their money grow.
SEE APPENDIX A3
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.-
Serving A Wide Range of Investors
Liberty Equity Income Fund, Inc. appeals to a broad range of investors seeking
income and growth.
The Fund invests primarily in a diversified portfolio of common stocks and
convertible securities issued by major corporations-both U.S. and
international. Fund shares are not quaranteed, and the value of your investment
may fluctuate. Mutual funds involve risk, including possible loss of principal.
SEE APPENDIX A4
Liberty Equity Income Fund, Inc.-
Portfolio Update
SEE APPENDIX A5
Liberty Equity Income Fund, Inc.(Class A Shares)
Growth of $10,000 Invested in Liberty Equity Income Fund, Inc.
The graph below illustrates the hypothetical investment of $10,000 in the
Liberty Equity Income Fund, Inc. from December 30, 1986 (start of performance)
to March 31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)_ and
the Lipper Equity Income Fund Index (LEIFI).+
SEE APPENDIX A6
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge =
$9,450). The fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LEIFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.
** Represent a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550) that was in effect prior to October 1, 1994. As of October 1, 1994, the
maximum sales load was 5.50%. The fund's performance assumes the reinvestment
of all dividends and distributions. The S&P 500 and the LEIFI have been
adjusted to reflect reinvestment of dividends on securities in the indices.
*** Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.
+ The S&P is not adjusted to reflect sales loads, expenses, or other fees that
the SEC requires to be reflected in the fund's performance. The LEIFI is not
adjusted to reflect sales loads. The indices are unmanaged.
Liberty Equity Income Fund, Inc.-
(Class B Shares, Class C Shares and Fortress Shares)
Growth of $10,000 Invested in Liberty Equity Income Fund, Inc.
The graphs below illustrate the hypothetical investment of $10,000 in the
Liberty Equity Income Fund, Inc. from the start of performance to March 31,
1995, compared to the Standard & Poor's 500 Index (S&P 500)++ and the Lipper
Equity Income Fund Index (LEIFI)++.
Liberty Equity Income Fund, Inc.-
(Class B Shares, Class C Shares and Fortress Shares)
SEE APPENDIX A7-9
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.50% contingent deferred sales charge on any redemption
made within one full year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500 and
the LEIFI have been adjusted to reflect reinvestment of dividends on securities
in the indices.
** Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption made within one full year from the purchase date. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
S&P 500 and the LEIFI have been adjusted to reflect reinvestment of dividends
on securities in the indices.
***Represents a hypothetical investment of $10,000 in the Fund. after deducting
the maximum sales load of 1.00% ($10,000 minus $100 sales load = $9,900). The
Fund's performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
****The ending value of the Fund reflects a contingent deferred sales charge of
1.00% on any redemption less than four years from the purchase date.
+ Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.
++ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The LEIFI is
not adjusted to reflect sales loads. The indices are unmanaged.
Liberty Equity Income Fund, Inc.
Portfolio of Investments
--------------------------------------------------------------------------------
March 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS & CONVERTIBLE PREFERRED STOCKS--81.9%
-------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.3%
----------------------------------------------------------------------------------
45,000 Dun & Bradstreet Corp. $ 2,368,125
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--4.4%
----------------------------------------------------------------------------------
50,000 Eastman Kodak Co. 2,656,250
----------------------------------------------------------------------------------
60,000 Ford Motor Co. 1,620,000
----------------------------------------------------------------------------------
15,000 Ford Motor Co., Conv. Pfd., Series A, $4.20 1,323,750
----------------------------------------------------------------------------------
160,000 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 2,220,000
---------------------------------------------------------------------------------- --------------
Total 7,820,000
---------------------------------------------------------------------------------- --------------
CONSUMER NON-DURABLES--10.4%
----------------------------------------------------------------------------------
70,000 Avon Products, Inc. 4,235,000
----------------------------------------------------------------------------------
100,000 Campbell Soup Co. 4,837,500
----------------------------------------------------------------------------------
45,000 General Mills, Inc. 2,683,125
----------------------------------------------------------------------------------
50,000 Philip Morris Cos., Inc. 3,262,500
----------------------------------------------------------------------------------
580,000 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 3,697,500
---------------------------------------------------------------------------------- --------------
Total 18,715,625
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--2.2%
----------------------------------------------------------------------------------
75,000 Gannett Co., Inc. 4,003,125
---------------------------------------------------------------------------------- --------------
ELECTRONIC TECHNOLOGY--4.5%
----------------------------------------------------------------------------------
111,500 Lockheed Martin Corp. 5,895,563
----------------------------------------------------------------------------------
30,000 Raytheon Co. 2,186,250
---------------------------------------------------------------------------------- --------------
Total 8,081,813
---------------------------------------------------------------------------------- --------------
ENERGY MINERALS--6.8%
----------------------------------------------------------------------------------
45,000 Amoco Corp. 2,863,125
----------------------------------------------------------------------------------
40,000 Exxon Corp. 2,670,000
----------------------------------------------------------------------------------
15,000 Royal Dutch Petroleum Co., ADR 1,800,000
----------------------------------------------------------------------------------
90,000 Tosco Corp. 2,790,000
----------------------------------------------------------------------------------
50,000 Valero Energy Corp., Conv. Pfd., $3.13 2,137,500
---------------------------------------------------------------------------------- --------------
Total 12,260,625
---------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS & CONVERTIBLE PREFERRED STOCKS--CONTINUED
-------------------------------------------------------------------------------------------------
FINANCE--8.1%
----------------------------------------------------------------------------------
53,300 CenterPoint Properties Corp. $ 992,713
----------------------------------------------------------------------------------
50,000 Chemical Banking Corp. 1,887,500
----------------------------------------------------------------------------------
80,000 Citicorp, PERCS, Series 15, $1.22 1,550,000
----------------------------------------------------------------------------------
40,000 First Interstate Bancorp 3,160,000
----------------------------------------------------------------------------------
70,000 First Union Corp. 3,036,250
----------------------------------------------------------------------------------
60,000 Meditrust, REIT 1,785,000
----------------------------------------------------------------------------------
50,000 Sunamerica, Inc., Conv., Pfd., Series D, $2.78 2,068,750
---------------------------------------------------------------------------------- --------------
Total 14,480,213
---------------------------------------------------------------------------------- --------------
HEALTH SERVICES--1.1%
----------------------------------------------------------------------------------
45,000 U.S. Healthcare, Inc. 1,991,250
---------------------------------------------------------------------------------- --------------
HEALTH TECHNOLOGY--7.7%
----------------------------------------------------------------------------------
60,000 American Home Products Corp. 4,275,000
----------------------------------------------------------------------------------
45,000 Bristol-Myers Squibb Co. 2,835,000
----------------------------------------------------------------------------------
70,000 Johnson & Johnson 4,165,000
----------------------------------------------------------------------------------
60,000 Merck & Co., Inc. 2,557,500
---------------------------------------------------------------------------------- --------------
Total 13,832,500
---------------------------------------------------------------------------------- --------------
INDUSTRIAL SERVICES--1.6%
----------------------------------------------------------------------------------
55,000 McDermott International, Inc. 1,505,625
----------------------------------------------------------------------------------
40,000 Noble Drilling Corp., Conv. Pfd., $2.25 1,300,000
---------------------------------------------------------------------------------- --------------
Total 2,805,625
---------------------------------------------------------------------------------- --------------
NON-ENERGY MINERALS--0.9%
----------------------------------------------------------------------------------
30,000 Phelps Dodge Corp. 1,706,250
---------------------------------------------------------------------------------- --------------
PROCESS INDUSTRIES--2.2%
----------------------------------------------------------------------------------
70,000 Eastman Chemical Co. 3,893,750
---------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--9.6%
----------------------------------------------------------------------------------
35,000 Deere & Co. 2,843,750
----------------------------------------------------------------------------------
100,000 Dresser Industries, Inc. 2,125,000
----------------------------------------------------------------------------------
70,000 Freeport McMoRan, Inc., Conv. Pfd., $4.38 3,605,000+
----------------------------------------------------------------------------------
</TABLE>
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS & CONVERTIBLE PREFERRED STOCKS--CONTINUED
-------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
----------------------------------------------------------------------------------
85,000 Johnson Controls, Inc. $ 4,324,375
----------------------------------------------------------------------------------
300,000 Westinghouse Electric Corp., PEPS, Series C, $1.30 4,387,500+
---------------------------------------------------------------------------------- --------------
Total 17,285,625
---------------------------------------------------------------------------------- --------------
RETAIL TRADE--4.9%
----------------------------------------------------------------------------------
80,000 Penney (J.C.) Co., Inc. 3,590,000
----------------------------------------------------------------------------------
99,263 Sears, Roebuck & Co. 5,298,163
---------------------------------------------------------------------------------- --------------
Total 8,888,163
---------------------------------------------------------------------------------- --------------
TECHNOLOGY SERVICES--1.9%
----------------------------------------------------------------------------------
60,000 General Motors Corp., Conv. Pfd., Series C 3,450,000
---------------------------------------------------------------------------------- --------------
TRANSPORTATION--1.3%
----------------------------------------------------------------------------------
100,000 Alexander and Baldwin, Inc. 2,250,000
---------------------------------------------------------------------------------- --------------
UTILITIES--13.0%
----------------------------------------------------------------------------------
70,000 AT&T Corp. 3,622,500
----------------------------------------------------------------------------------
40,000 British Telecommunication PLC, ADR 2,530,000
----------------------------------------------------------------------------------
100,000 Cinergy Corp. 2,487,500
----------------------------------------------------------------------------------
70,000 Enron Global Power & Pipelines, L.L.C. 1,680,000
----------------------------------------------------------------------------------
40,000 GTE Corp. 1,330,000
----------------------------------------------------------------------------------
60,000 NIPSCO Industries, Inc. 1,867,500
----------------------------------------------------------------------------------
96,250 National Power Co. PLC, ADR 1,034,688
----------------------------------------------------------------------------------
50,000 Pinnacle West Capital Corp. 1,043,750
----------------------------------------------------------------------------------
100,000 Sonat, Inc. 3,000,000
----------------------------------------------------------------------------------
60,000 Southwestern Bell Corp. 2,527,500
----------------------------------------------------------------------------------
150,000 Westcoast Energy, Inc. 2,231,250
---------------------------------------------------------------------------------- --------------
Total 23,354,688
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS & CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST $139,714,836) 147,187,377
---------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
------------- ---------------------------------------------------------------------------------- --------------
CONVERTIBLE BONDS--12.6%
-------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--3.9%
----------------------------------------------------------------------------------
$ 2,000,000 Cypress Semiconductor Corp., Conv. Sub. Note, 3.15%, 3/15/2001 $ 2,152,940+
----------------------------------------------------------------------------------
2,000,000 General Instrument Corp., Conv. Jr. Sub. Note, 5.00%, 6/15/2000 3,031,360
----------------------------------------------------------------------------------
800,000 LSI Logic Corp., Conv. Sub. Note, 5.50%, 3/15/2001 1,780,320
---------------------------------------------------------------------------------- --------------
Total 6,964,620
---------------------------------------------------------------------------------- --------------
ENERGY MINERALS--2.2%
----------------------------------------------------------------------------------
2,000,000 Pennzoil Co., Conv. Deb., 6.50%, 1/15/2003 2,390,880
----------------------------------------------------------------------------------
1,300,000 Pennzoil Co., Conv. Deb., 6.50%, 1/15/2003 1,555,125
---------------------------------------------------------------------------------- --------------
Total 3,946,005
---------------------------------------------------------------------------------- --------------
FINANCE--2.3%
----------------------------------------------------------------------------------
4,000,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 4,160,000
---------------------------------------------------------------------------------- --------------
PROCESS INDUSTRIES--2.9%
----------------------------------------------------------------------------------
2,000,000 Riverwood International Corp., Conv. Sub. Note, 6.75%, 9/15/2003 2,338,160+
----------------------------------------------------------------------------------
1,000,000 Riverwood International Corp., Conv. Sub. Note, 6.75%, 9/15/2003 1,166,510+
----------------------------------------------------------------------------------
800,000 Stone Container Corp., Conv. Sr. Sub. Note, 8.875%, 7/15/2000 1,716,416
---------------------------------------------------------------------------------- --------------
Total 5,221,086
---------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--0.4%
----------------------------------------------------------------------------------
690,000 Grand Metropolitan PLC, Conv. Deb., 6.50%, 1/31/2000 736,127+
---------------------------------------------------------------------------------- --------------
UTILITIES--0.9%
----------------------------------------------------------------------------------
2,000,000 Telekon Malaysia Berhad, Conv. Bond. 4.00%, 10/3/2004 1,678,760+
---------------------------------------------------------------------------------- --------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $20,528,813) 22,706,598
---------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
------------- ---------------------------------------------------------------------------------- --------------
(A) REPURCHASE AGREEMENT--6.8%
-------------------------------------------------------------------------------------------------
$ 12,285,000 J.P. Morgan & Co., Inc., 6.30%, dated 3/27/1995, due 4/3/1995 $ 12,285,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $172,528,649*) $ 182,178,975(B)
---------------------------------------------------------------------------------- --------------
</TABLE>
+Restricted Securities--Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted to
8.9% of net assets.
*Includes Advanstar and New Century Communications Trust Certificates which
have been assigned a zero value and zero identified cost.
(a)The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account.
(b)The cost of investments for federal tax purposes amounts to $172,676,828. The
unrealized appreciation of investments on a federal tax basis amounts to
$9,502,147 which is comprised of $12,640,876 appreciation and $3,138,729
depreciation at March 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($179,830,034) at March 31, 1995.
The following abbreviation(s) are used throughout this portfolio:
ADR--American Depositary Receipt
PEPS--Participating Equity Preferred Stock
PERCS--Preferred Equity Redemption Cumulative Stock
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements.)
Liberty Equity Income Fund, Inc.
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
March 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $172,528,649, and tax cost $172,676,828) $182,178,975
---------------------------------------------------------------------------------------------------
Cash 4,069
---------------------------------------------------------------------------------------------------
Income receivable 704,331
---------------------------------------------------------------------------------------------------
Receivable for investments sold 1,496,411
---------------------------------------------------------------------------------------------------
Receivable for shares sold 1,052,670
--------------------------------------------------------------------------------------------------- -----------
Total assets 185,436,456
--------------------------------------------------------------------------------------------------- -----------
LIABILITIES:
---------------------------------------------------------------------------------------------------
Payable for investments purchased $4,555,595
----------------------------------------------------------------------------------------
Payable for shares redeemed 766,983
----------------------------------------------------------------------------------------
Income distribution payable 167,923
----------------------------------------------------------------------------------------
Accrued expenses 115,921
---------------------------------------------------------------------------------------- ---------
Total liabilities 5,606,422
--------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 15,630,706 shares outstanding $179,830,034
--------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
---------------------------------------------------------------------------------------------------
Paid in capital $176,685,175
---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 9,650,326
---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (6,961,046)
---------------------------------------------------------------------------------------------------
Undistributed net investment income 455,579
--------------------------------------------------------------------------------------------------- -----------
Total Net Assets $179,830,034
--------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
---------------------------------------------------------------------------------------------------
Class A Shares:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($108,682,601 / 9,446,625 shares outstanding) $11.50
--------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $11.50)* $12.17
--------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $11.50
--------------------------------------------------------------------------------------------------- -----------
Fortress Shares:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($34,885,865 / 3,032,227 shares outstanding) $11.51
--------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/99.00 of $11.51)* $11.63
--------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $11.51)** $11.39
--------------------------------------------------------------------------------------------------- -----------
Class C Shares:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($30,189,444 / 2,624,061 shares outstanding) $11.50
--------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.50
--------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $11.50)** $11.39
--------------------------------------------------------------------------------------------------- -----------
Class B Shares:
---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($6,072,124 / 527,793 shares outstanding) $11.50
--------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $11.50
--------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $11.50)** $10.87
--------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "How to Purchase Shares" or "What Shares Cost" in the respective
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
--------------------------------------------------------------------------------
Year Ended March 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
----------------------------------------------------------------------------------------------------
Interest $ 1,749,957
----------------------------------------------------------------------------------------------------
Dividends 6,278,757
---------------------------------------------------------------------------------------------------- ------------
Total income 8,028,714
----------------------------------------------------------------------------------------------------
EXPENSES:
----------------------------------------------------------------------------------------------------
Investment advisory fee $ 960,072
---------------------------------------------------------------------------------------
Administrative personnel and services fees 200,945
---------------------------------------------------------------------------------------
Custodian fees 70,599
---------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 227,351
---------------------------------------------------------------------------------------
Directors'/Trustees' fees 12,044
---------------------------------------------------------------------------------------
Auditing fees 18,113
---------------------------------------------------------------------------------------
Legal fees 15,387
---------------------------------------------------------------------------------------
Portfolio accounting fees 44,433
---------------------------------------------------------------------------------------
Distribution services fee--Fortress Shares 76,543
---------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 217,661
---------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 9,714
---------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 213,268
---------------------------------------------------------------------------------------
Shareholder services fee--Fortress Shares 62,462
---------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 64,761
---------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 3,238
---------------------------------------------------------------------------------------
Share registration costs 123,493
---------------------------------------------------------------------------------------
Printing and postage 134,646
---------------------------------------------------------------------------------------
Insurance premiums 8,235
---------------------------------------------------------------------------------------
Taxes 9,175
---------------------------------------------------------------------------------------
Miscellaneous 2,320
--------------------------------------------------------------------------------------- -----------
Total expenses 2,474,460
---------------------------------------------------------------------------------------
Deduct--
---------------------------------------------------------------------------------------
Waiver of investment advisory fee 570,904
--------------------------------------------------------------------------------------- -----------
Net expenses 1,903,556
---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,125,158
---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (5,318,671)
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 11,980,000
---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments 6,661,329
---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 12,786,487
---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Liberty Equity Income Fund, Inc.
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
---------------------------------------------------------------------------------
OPERATIONS--
---------------------------------------------------------------------------------
Net investment income $ 6,125,158 $ 2,446,477
---------------------------------------------------------------------------------
Net realized gain/(loss) on investments ($1,981,170 net loss and $1,691,070 net
gain, respectively, as computed for federal tax
purposes) (5,318,671) 1,691,070
---------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) on investments 11,980,000 (5,584,588)
--------------------------------------------------------------------------------- -------------- --------------
Change in assets resulting from operations 12,786,487 (1,447,041)
--------------------------------------------------------------------------------- -------------- --------------
NET EQUALIZATION CREDITS/(DEBITS) 129,755 364,341
--------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
---------------------------------------------------------------------------------
Dividends from net investment income:
---------------------------------------------------------------------------------
Class A Shares (4,061,012) (2,025,184)
---------------------------------------------------------------------------------
Fortress Shares (1,195,855) (136,752)
---------------------------------------------------------------------------------
Class C Shares (977,144) (321,427)
---------------------------------------------------------------------------------
Class B Shares (48,850) --
--------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (6,282,861) (2,483,363)
--------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
(Exclusive of amounts allocated to net investment income)
---------------------------------------------------------------------------------
Proceeds from sales of Shares 77,783,595 115,275,927
---------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in
payment of distributions declared 3,807,006 1,366,110
---------------------------------------------------------------------------------
Cost of Shares redeemed (38,700,929) (13,384,498)
--------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Share transactions 42,889,672 103,257,539
--------------------------------------------------------------------------------- -------------- --------------
Change in net assets 49,523,053 99,691,476
---------------------------------------------------------------------------------
NET ASSETS:
---------------------------------------------------------------------------------
Beginning of period 130,306,981 30,615,505
--------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $455,579 and
$483,527, respectively) $ 179,830,034 $ 130,306,981
--------------------------------------------------------------------------------- -------------- --------------
</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>
YEAR ENDED MARCH 31,
1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22 $ 10.18
----------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------
Net investment income 0.49 0.43 0.55 0.69 0.84 0.91 0.89 0.72
----------------------------------
Net realized and unrealized gain
(loss) on investments 0.40 0.15 1.22 1.08 (0.16) (1.18) 1.59 (0.81)
---------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from investment operations 0.89 0.58 1.77 1.77 0.68 (0.27) 2.48 (0.09)
----------------------------------
LESS DISTRIBUTIONS
----------------------------------
Distributions from net
investment income (0.45) (0.43) (0.53) (0.69) (0.86) (0.87) (0.86) (0.72)
----------------------------------
Distributions in excess of net
investment income 0.00 0.00 0.00 0.00 0.00 (0.41 (d) 0.00 0.00
----------------------------------
Distributions from net realized
gain on investment transactions 0.00 0.00 0.00 0.00 0.00 (0.52) 0.00 (0.15)
---------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
Total distributions (0.45) (0.43) (0.53) (0.69) (0.86) (1.80) (0.86) (0.87)
---------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.50 $ 11.06 $ 10.91 $ 9.67 $ 8.59 $ 8.77 $ 10.84 $ 9.22
---------------------------------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 8.31% 5.29% 18.98% 21.19% 8.95% (3.19%) 28.25% (0.54%)
----------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------
Expenses 1.00% 1.00% 0.99% 1.04% 1.05% 0.97% 0.77% 1.16%(f)
----------------------------------
Net investment income 4.01% 3.82% 5.45% 7.36% 10.25% 9.34% 9.02% 8.32%(f)
----------------------------------
Expense waiver/reimbursement (e) 0.36% 0.89% 1.60% 1.46% 1.46% 1.43% 1.25% 0.86%(f)
----------------------------------
SUPPLEMENTAL DATA
----------------------------------
Net assets, end of period (000
omitted) $108,683 $84,665 $30,616 $25,176 $22,589 $22,052 $11,306 $8,895
----------------------------------
Portfolio turnover 91% 43% 79% 115% 31% 54% 49% 41%
----------------------------------
<CAPTION>
1987(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00
----------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------
Net investment income 0.23
----------------------------------
Net realized and unrealized gain
(loss) on investments 0.18
---------------------------------- -----------
Total from investment operations 0.41
----------------------------------
LESS DISTRIBUTIONS
----------------------------------
Distributions from net
investment income (0.23)
----------------------------------
Distributions in excess of net
investment income 0.00
----------------------------------
Distributions from net realized
gain on investment transactions 0.00
---------------------------------- -----------
Total distributions (0.23)
---------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.18
---------------------------------- -----------
TOTAL RETURN (B) 3.63%
----------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------
Expenses 1.22%(f)
----------------------------------
Net investment income 6.93%(f)
----------------------------------
Expense waiver/reimbursement (e) 0.28%(f)
----------------------------------
SUPPLEMENTAL DATA
----------------------------------
Net assets, end of period (000
omitted) $10,866
----------------------------------
Portfolio turnover 24%
----------------------------------
</TABLE>
(a) Reflects operations for the period from December 30, 1986 (date of initial
public investment) to April 30, 1987.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) 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.)
(d) 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.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) Computed on an annualized basis.
(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 THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.24
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------------------------------------------
Net investment income 0.19
------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.26
------------------------------------------------------------------------------------------------ -------
Total from investment operations 0.45
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
------------------------------------------------------------------------------------------------
Distributions from net investment income (0.19)
------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 11.50
------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (B) 4.14%
------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------------------------------------------
Expenses 1.80%(c)
------------------------------------------------------------------------------------------------
Net investment income 3.42%(c)
------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.47%(c)
------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 6,072
------------------------------------------------------------------------------------------------
Portfolio turnover 91%
------------------------------------------------------------------------------------------------
</TABLE>
(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 load or contingent
deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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>
YEAR ENDED
MARCH 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 10.76
----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------------------------
Net investment income 0.37 0.34
----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.44 0.28
---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.81 0.62
----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------------------------
Distributions from net investment income (0.37) (0.32)
---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.50 $ 11.06
---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 7.52% 5.66%
----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------------------------
Expenses 1.76% 1.79%(c)
----------------------------------------------------------------------------------------------
Net investment income 3.25% 2.99%(c)
----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.36% 0.89%(c)
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $30,189 $24,632
----------------------------------------------------------------------------------------------
Portfolio turnover 91% 43%
----------------------------------------------------------------------------------------------
</TABLE>
(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 load or contingent
deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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>
YEAR ENDED
MARCH 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.06 $ 11.74
----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------------------------
Net investment income 0.42 0.17
----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.46 (0.68)
---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.88 (0.51)
----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------------------------
Distributions from net investment income (0.43) (0.17)
---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.51 $ 11.06
---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (b) 8.05% (4.43%)
----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------------------------
Expenses 1.24% 1.29%(c)
----------------------------------------------------------------------------------------------
Net investment income 3.79% 3.71%(c)
----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.36% 0.89%(c)
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $34,886 $21,010
----------------------------------------------------------------------------------------------
Portfolio turnover 91% 43%
----------------------------------------------------------------------------------------------
</TABLE>
(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 the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) 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
--------------------------------------------------------------------------------
March 31, 1995
(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. Effective May 3, 1993, November 12, 1993, and
September 27, 1994, the Fund added Class C Shares, Fortress Shares, and Class B
Shares, respectively. 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--Listed equity securities, and other fixed income
securities are valued at the last sale price reported on national
securities exchanges. Listed corporate bonds, unlisted securities, and
short-term securities are generally valued at the price provided by an
independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
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 principal amount of 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 and/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--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
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. 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
April 1, 1995, the first day of the Fund's next taxable year.
EQUALIZATION--The Fund follows the accounting practice known as
equalization in which 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 Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the prices provided by an independent pricing
service, or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
Additional information on each restricted security held at March 31, 1995
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Cypress Semiconductor Corp.,
Conv. Sub. Note 3/30/94 $ 1,749,750
Freeport McMoRan, Inc.,
Conv. Deb. 8/5/91 $ 3,235,938
Grand Metropolitan PLC,
Conv. Deb. 1/31/95 $ 712,663
Riverwood International Corp.,
Conv. Sub. Deb. 9/17/93 $ 2,000,000
Riverwood International Corp.,
Conv. Sub. Deb. 3/15/94 $ 1,110,000
Telekon Malaysia Berhad,
Conv. Bond 10/3/94 $ 2,000,000
Westinghouse Electric Corp.,
Series C 3/22/94 $ 8,481,920
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At March 31, 1995, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
CLASS NAME NO. OF PAR VALUE SHARES AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Fortress Shares 500,000,000
Class C Shares 500,000,000
Class B Shares 500,000,000
</TABLE>
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,771,742 $ 41,785,909 5,708,267 $ 65,363,045
--------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 236,025 2,605,506 102,333 1,163,080
--------------------------------------------------------
Shares redeemed (2,214,569) (24,461,004) (962,354) (11,025,715)
-------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Class A Share
transactions 1,793,198 $ 19,930,411 4,848,246 $ 55,500,410
-------------------------------------------------------- ----------- -------------- ---------- -------------
</TABLE>
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994*
FORTRESS SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,647,385 $ 18,354,458 1,992,039 $ 23,193,220
--------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 66,290 732,706 7,232 83,446
--------------------------------------------------------
Shares redeemed (581,721) (6,411,353) (98,998) (1,136,145)
-------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Fortress Share transactions 1,131,954 $ 12,675,811 1,900,273 $ 22,140,521
-------------------------------------------------------- ----------- -------------- ---------- -------------
</TABLE>
* For the period November 12, 1993 (date of initial public offering) to March
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994**
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,047,591 $ 11,663,392 2,322,963 $ 26,719,662
--------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 38,565 426,333 10,379 119,584
--------------------------------------------------------
Shares redeemed (689,528) (7,619,912) (105,909) (1,222,638)
-------------------------------------------------------- ----------- -------------- ---------- -------------
Net change resulting from Class C Share transactions 396,628 $ 4,469,813 2,227,433 $ 25,616,608
-------------------------------------------------------- ----------- -------------- ---------- -------------
</TABLE>
** For the period May 3, 1993 (date of initial public offering) to March 31,
1994.
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31,
1995*** 1994
CLASS B SHARES SHARES DOLLARS SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 542,872 $ 5,979,836 -- $ --
----------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 3,850 42,461 -- --
----------------------------------------------------
Shares redeemed (18,929) (208,660) -- --
---------------------------------------------------- ---------- -------------- -------------- --------------
Net change resulting from Class B Share transactions 527,793 $ 5,813,637 -- --
---------------------------------------------------- ---------- -------------- -------------- --------------
Net change resulting from Fund share transactions 3,849,573 $ 42,889,672 8,975,952 $ 103,257,539
---------------------------------------------------- ---------- -------------- -------------- --------------
</TABLE>
*** For the period September 27, 1994 (date of initial public offering) to March
31, 1995.
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive a 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 ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Fortress Shares, Class C Shares, and Class B Shares. The Plan
provides that the Fund may incur distribution expenses up to .25 of 1%, .75 of
1%, and .75 of 1%, respectively, of the average daily net assets annually, to
compensate FSC.
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 average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain the shareholder accounts.
TRANSFER AGENT FEE--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.
Liberty Equity Income Fund, Inc.
--------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 1995, were as follows:
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------------------
PURCHASES $ 183,702,158
-------------------------------------------------------------------------------------------------- --------------
SALES $ 138,263,814
-------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
--------------------------------------------------------------------------------
To the Board of Directors,
LIBERTY EQUITY INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of Liberty
Equity Income Fund, Inc., including the portfolio of investments, as of March
31, 1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
March 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Liberty Equity Income Fund, Inc. at March 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
May 12, 1995
Directors Officers
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
J. Christopher Donahue President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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.
FEDERATED SECURITIES CORP.
Distributor
A Subsidiry of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
530461102
530461409
530461201
530461300
8042506 (5/95)
A1. 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. The "x" axis reflects
computation periods from 12/30/86 to 3/31/95. The "y" axis is measured
in increments of $10,000 ranging from $0 to $20,000 and indicates that
the ending value of hypothetical initial investment of $9,000 in the
fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $19,489 on 3/31/95.
A2. 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. The "x" axis
reflects computation periods from 12/30/86 to 3/31/95. The "y" axis is
measured in increments of $3,000 ranging from $0 to $15,000 and
indicates that the ending value of hypothetical yearly investments of
$1,000 in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $14,246 on 3/31/95.
A3. 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 beneath it. The "x" axis
reflects computation periods from 12/30/86 to 3/31/95. The "y" axis is
measured in increments of $5,000 ranging from $0 to $25,000 and
indicates that the ending value of a hypothetical initial investment of
$10,000 would have grown to $21,655 on 3/31/95.
A4. The graphic presentation here displayed lists some of the fund's
major shareholder groups. Said groups and the value of their respective
holdings are as follows: Individuals and Joint Tenants, $30,441,929;
IRAs, $33,847,940; Trusts, $5,817,629; Corporations, $2,046,808; and
Custodians (under Uniform Gift to Minors Act), $1,967,928.
A5. The bar chart is a visual representation of Liberty Equity Income
Fund, Inc.'s top ten holdings as of March 31, 1995. The information
lists is as follows: Lockheed Martin Corp., 3.28%; Sears Roebuck and
Co., 2.95%; Campbells Soup Co., 2.69%; Westinghouse, 2.44%; Johnson
Controls, Inc., 2.41%; American Home Products Co., 2.38%; Avon Products,
Inc., 2.36%; Johnson & Johnson, 2.32%; Equitable Cos., Inc., 2.32%; and
Gannett Co., Inc. 2.23%.
A6. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Class A Shares of Liberty Equity Income Fund, Inc. based on a 5.5%
sales load are represented by a solid line. The Class A Shares of
Liberty Equity Income Fund, Inc. based on a 4.5% sales load are
represented by a double broken solid line. The Standard & Poor's 500
Index (the "S&P 500") is represented by a broken solid line and the
Lipper Equity Income Fund Index ("LEIFI") is represented by a triple
broken dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in
Class A Shares of the fund and the S&P 500 and the LEIFI. The "x" axis
reflects computation periods from 12/30/86 to 3/31/95. The "y" axis
reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class A Shares
based on a 5.5% and 4.5% sales load, as compared to the S&P 500 and
the LEIFI; the ending values were $21,655, $21,896, $26,907, and
$23,279, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total
Returns for the one-year, five-year, and start of performance (12/30/86)
periods ended 3/31/95, which were 2.38%, 11.11%, and 9.81%,
respectively.
A7. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
Class B Shares of Liberty Equity Income Fund, Inc. are represented by a
solid line, the Standard & Poor's 500 Index (the "S&P 500") is
represented by a double broken dotted line and the Lipper Equity Income
Fund Index ("LEIFI") is represented by a broken line. The line graph is
a visual representation of a comparison of change in value of a $10,000
hypothetical investment in Class B Shares of the fund and the S&P 500
and the LEIFI. The "x" axis reflects computation periods from 9/27/94
to 3/31/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of an investment in the fund's Class B
Shares based on the assessment of the maximum contingent deferred sales
charge of 5.50%, as compared to the S&P 500 and LEIFI; the ending values
were $10,124, $11,221, and $10,657, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class B
Shares Average Annual Total Returns for the one year and start of
performance (9/27/94) periods ended 3/31/95, which were 5.97% and 0.90%,
respectively.
A8. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
Class C Shares of Liberty Equity Income Fund, Inc. are represented by a
solid line, the Standard & Poor's 500 Index (the "S&P 500") is
represented by a double broken dotted line and the Lipper Equity Income
Fund Index ("LEIFI") is represented by a broken line. The line graph is
a visual representation of a comparison of change in value of a $10,000
hypothetical investment in Class C Shares of the fund and the S&P 500
and the LEIFI. The "x" axis reflects computation periods from 5/3/93
to 3/31/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of an investment in the fund's Class C
Shares as compared to the S&P 500 and LEIFI; the ending values were
$11,361, $11,971, and $11,546, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Class C Shares
Average Annual Total Returns for the one year and start of performance
(5/3/93) periods ended 3/31/95, which were 6.49% and 6.91%,
respectively.
A9. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
Fortress Shares of Liberty Equity Income Fund, Inc. are represented by a
solid line, the Standard & Poor's 500 Index (the "S&P 500") is
represented by a double broken dotted line and the Lipper Equity Income
Fund Index ("LEIFI") is represented by a broken line. The line graph is
a visual representation of a comparison of change in value of a $10,000
hypothetical investment in Fortress Shares of the fund and the S&P 500
and the LEIFI. The "x" axis reflects computation periods from 11/12/93
to 3/31/95. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of an investment in the fund's Fortress
Shares as compared to the S&P 500 and LEIFI; the ending values were
$10,124, $11,221, and $10,657, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the fund's Fortress
Shares Average Annual Total Returns for the one year and start of
performance (11/12/93) periods ended 3/31/95, which were 5.97% and
0.90%, respectively.
