1933 Act File No. 33-6901
1940 Act File No. 811-4743
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 17 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20 X
LIBERTY EQUITY INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on May 31, 1995 pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on May 15, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Liberty Equity
Income Fund, Inc., which is comprised of four classes of shares, (1)
Class A Shares, (2) Class B Shares, (3) Class C Shares and (4) Fortress
Shares, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page (1-4).
Item 2. Synopsis Synopsis (1-3) Summary of Fund
Expenses (1-4).
Item 3. Condensed Financial
Information Financial Highlights (1-4);
Performance Information (1-4).
Item 4. General Description of
Registrant General Information (1-4); Liberty
Family of Funds (1-3); Federated
LifeTrack Program (1, 3); Fortress
Investment Program (4); Investment
Information (1-4); Investment
Objectives (1-4); Investment
Policies (1-4); Investment
Limitations (1-4); Other Classes of
Shares (1-4).
Item 5. Management of the Fund Fund Information; Management of the
Fund (1-4); Distribution of
Fortress Shares (4); Other Payments
to Financial Institutions (1-4);
Administration of the Fund (1-4);
Brokerage Transactions (1-4).
Item 6. Capital Stock and Other
Securities Shareholder Information (1-4);
Voting Rights (1-4); Tax
Information (1-4); Federal Income
Tax (1-4); Pennsylvania Personal
Property Taxes (1-4).
Item 7. Purchase of Securities Being
Offered Net Asset Value (1-4); How to
Purchase Shares (1-3); Investing in
Class A Shares (1); Investing in
Class B Shares (2); Investing in
Class C Shares (3); Investing in
Fortress Shares (4); Share
Purchases; Minimum Investment
Required; What Shares Cost (4);
Exchange Privilege (1-3); Exchange
Privileges (4).
Item 8. Redemption or Repurchase How to Redeem Shares; Special
Redemption Features (1-3);
Redeeming Fortress Shares (4);
Contingent Deferred Sales Charge (1-
4); Account and Share Information
.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover Page (1-4).
Item 11. Table of Contents. Table of Contents (1-4).
Item 12. General Information and
History. General Information About the Fund
(1-4).
Item 13. Investment Objectives and
Policies. Investment Objectives and Policies
(1-4).
Item 14. Management of the Fund. See Part A - Management of the Fund
(1-4).
Item 15. Control Persons and Principal
Holders of Securities. Directors Compensation (1-4).
Item 16. Investment Advisory and Other
Services. Investment Advisory Services (1-4);
Administrative Services (1-4).
Item 17. Brokerage Allocation. Brokerage Transactions (1-4).
Item 18. Capital Stock and Other
Securities. Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered. Purchasing Shares (1-4);
Determining Net Asset Value (1-4);
Exchange Privilege (Fortress Shares
Only) (4); Redeeming Shares (1-4).
Item 20. Tax Status. Tax Status (1-4).
Item 21. Underwriters. See Part A - Distribution of (Class
A , Class C, or Fortress) Shares.
Item 22. Calculation of Performance
Data. Total Return (1-4); Yield (1-4);
Current Distributions (1-4);
Performance Comparisons (1-4);
Item 23. Financial Statements. Incorporated by reference to Annual
Report of Registrant dated March
31,1995, 1995 (File Nos. 33-6901
and 811-4743).
LIBERTY EQUITY INCOME FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
FORTRESS SHARES
Combined Statement of Additional Information
This Combined Statement of Additional Information should be read
with the combined prospectus for Class A Shares, Class B Shares,
and Class C Shares, and the prospectus for Fortress Shares of
Liberty Equity Income Fund, Inc. (the "Fund"), dated May 31, 1995.
This Statement is not a prospectus itself. To receive a copy of
any of the prospectuses, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
GENERAL INFORMATION ABOUT THE
FUND 1
INVESTMENT OBJECTIVES AND
POLICIES 1
Convertible Securities 1
Temporary Investments 1
Warrants 2
When-Issued and Delayed
Delivery Transactions 2
Repurchase Agreements 2
Futures and Options
Transactions 2
Restricted and Illiquid
Securities 4
Lending of Portfolio Securities 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
INVESTMENT LIMITATIONS 5
LIBERTY EQUITY INCOME FUND, INC.,
MANAGEMENT 7
Directors Compensation 11
INVESTMENT ADVISORY SERVICES 12
Adviser to the Fund 12
Advisory Fees 12
ADMINISTRATIVE SERVICES 12
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 12
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 13
Distribution and Shareholder
Services Plans 13
Conversion to Federal Funds 13
Purchases by Sales
Representatives,
Fund Directors, and Employees 14
Exchanging Securities for Fund
Shares 14
Determining Market Value of
Securities 14
EXCHANGE PRIVILEGE (FORTRESS
SHARES ONLY) 15
Reduced Sales Load 15
Requirements for Exchange 15
Tax Consequences 15
Making an Exchange 15
REDEEMING SHARES 16
Redemption in Kind 16
TAX STATUS 16
The Fund's Tax Status 16
Shareholders' Tax Status 16
TOTAL RETURN 17
YIELD 17
CURRENT DISTRIBUTIONS 17
PERFORMANCE COMPARISONS 18
ABOUT FEDERATED INVESTORS 19
Mutual Fund Market 19
Institutional 19
Trust Organizations 19
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 19
FINANCIAL STATEMENTS 20
APPENDIX 21
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on
July 29, 1986. It is qualified to do business as a foreign corporation
in Pennsylvania. On December 21, 1992, shareholders of the Fund approved
changing the name of the Fund from Convertible Securities and Income,
Inc., to Liberty Equity Income Fund, Inc.
Shares of the Fund are offered in four classes known as Class A Shares,
Class B Shares, Class C Shares, and Fortress Shares (individually and
collectively referred to as "Shares," as the context may require). This
Combined Statement of Additional Information relates to all classes of
Shares of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders.
CONVERTIBLE SECURITIES
As with all fixed-income securities, various market forces influence the
market value of convertible securities, including changes in the level
of interest rates. As the level of interest rates increases, the market
value of convertible securities may decline and, conversely, as interest
rates decline, the market value of convertible securities may increase.
The unique investment characteristic of convertible securities, the
right to be exchanged for the issuer's common stock, causes the market
value of convertible securities to increase when the underlying common
stock increases. However, since securities prices fluctuate, there can
be no assurance of capital appreciation, and most convertible securities
will not reflect quite as much capital appreciation as their underlying
common stocks. When the underlying common stock is experiencing a
decline, the value of the convertible security tends to decline to a
level approximating the yield-to-maturity basis of straight
nonconvertible debt of similar quality, often called "investment value,"
and may not experience the same decline as the underlying common stock.
Many convertible securities sell at a premium over their conversion
values (i.e., the number of shares of common stock to be received upon
conversion multiplied by the current market price of the stock). This
premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of
capital appreciation due to the conversion privilege. If this
appreciation potential is not realized, the premium may not be
recovered.
TEMPORARY INVESTMENTS
The temporary investments in which the Fund may invest include, but are
not limited to:
o commercial paper rated A-1 or A-2 by Standard & Poor's Ratings
Group, Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-
1 or F-2 by Fitch Investors Service, Inc., and Europaper rated A-
1, A-2, Prime-1, or Prime-2. In the case where commercial paper or
Europaper has received different ratings from different rating
services, such commercial paper or Europaper is an acceptable
temporary investment so long as at least one rating is one of the
preceding high-quality ratings and provided the Fund's investment
adviser, Federated Advisers (the "Adviser"), has determined that
such investment presents minimal credit risks;
o instruments of domestic and foreign banks and savings and loans if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
insured by the Federal Deposit Insurance Corporation. These
instruments may include Eurodollar Certificates of Deposits
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and
Eurodollar Time Deposits ("ETDs");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments which are not rated but are
determined by the Adviser to be of comparable quality to the other
temporary obligations in which the Fund may invest.
Investment Risks
ECDs, ETDs, Yankee CDs, and Europaper are subject to different
risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and
political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign
withholding or other taxes on interest income, difficulties in
obtaining or enforcing a judgment against the issuing entity, and
the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for ECDs,
ETDs, and Yankee CDs because the banks issuing these instruments,
or their domestic or foreign branches, are not necessarily subject
to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations,
accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by the
Adviser in selecting investments for the Fund.
WARRANTS
Warrants basically are options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned
common stock at issuance) valid for a specific period of time. Warrants
may have a life ranging from less than a year to twenty years or may be
perpetual. However, warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Adviser to be creditworthy
pursuant to guidelines established by the Board of Directors (the
"Directors").
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write
covered call options on portfolio securities to attempt to increase its
current income.
Financial Futures Contracts
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of security
called for in the contract ("going short") and the buyer who
agrees to take delivery of the security ("going long") at a
certain time in the future.
In the fixed-income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its
holdings of fixed-income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect
itself against the possibility that the prices of its fixed-income
securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in
market interest rates.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date
at a specified price, the purchase of a put option on a futures
contract entitles (but does not obligate) its purchaser to decide
on or before a future date whether to assume a short position at
the specified price.
The Fund would purchase put options on futures contracts to
protect portfolio securities against decreases in value resulting
from an anticipated increase in market interest rates. Generally,
if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also
decrease in value and the option will increase in value. In such
an event, the Fund will normally close out its option by selling
an identical option. If the hedge is successful, the proceeds
received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver
the futures contract in return for payment of the strike price. If
the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may
write listed call options on futures contracts to hedge its
portfolio against an increase in market interest rates. When the
Fund writes a call option on a futures contract, it is undertaking
the obligation of assuming a short futures position (selling a
futures contract) at the fixed strike price at any time during the
life of the option if the option is exercised. As market interest
rates rise, causing the prices of futures to go down, the Fund's
obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's
call option position to increase.
In other words, as the underlying futures price goes down below
the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for
the option. This premium can offset the drop in value of the
Fund's fixed-income portfolio which is occurring as interest rates
rise.
Prior to the expiration of a call written by the Fund, or exercise
of it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the
second option will be less than the premium received by the Fund
for the initial option. The net premium income of the Fund will
then offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if,
in the aggregate, the value of the open positions (marked to
market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close
out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay
or receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial
margin" in cash or U.S. Treasury bills with its custodian (or the
broker, if legally permitted). The nature of initial margin in
futures transactions is different from that of margin in
securities transactions in that futures contract initial margin
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance
bond or good-faith deposit on the contract which is returned to
the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market
its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
Purchasing Put Options on Portfolio Securities
The Fund may purchase put options on portfolio securities to
protect against price movements in particular securities in its
portfolio. A put option gives the Fund, in return for a premium,
the right to sell the underlying security to the writer (seller)
at a specified price during the term of the option.
Writing Covered Call Options on Portfolio Securities
The Fund may also write covered call options to generate income.
As writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. The Fund
may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash
in the amount of any additional consideration).
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under an Securities and Exchange
Commission's Staff position set forth in the adopting release for Rule
144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive, safe harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the Staff of the Securities and Exchange Commission
has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination of
the Directors. The Directors consider the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace
trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker. The
Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but the ability
to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an
attempt to achieve the Fund's investment objective. Securities in the
Fund's portfolio will be sold whenever the Adviser believes it is
appropriate to do so in light of the Fund's investment objective,
without regard to the length of time a particular security may have been
held. The Adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs. For the fiscal
years ended March 31, 1995 and 1994, the portfolio turnover rates were
91% and 43%, respectively.
INVESTMENT LIMITATIONS
Buying on Margin
The Fund will not purchase any securities on margin but may obtain
such short-term credits as are necessary for clearance of
transactions. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
Selling Short
The Fund will not sell securities short unless during the time the
short position is open, it owns an equal amount of the securities
sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the
securities sold short; and not more than 10% of the Fund's net
assets (taken at current value) is held as collateral for such
sales at any one time.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any borrowings are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 10% of the value of total assets at
the time of the borrowing. Margin deposits for the purchase and
sale of financial futures contracts and related options are not
deemed to be a pledge.
Investing in Minerals or Real Estate
The Fund will not invest in oil, gas, or other mineral exploration
or development programs, or real estate, except that it may
purchase portfolio instruments issued by companies that invest in
or sponsor such interests.
Investing in Commodities
The Fund will not purchase or sell commodities, except that the
Fund may purchase and sell financial futures contracts and related
options.
Investing in Restricted Securities
The Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under federal
securities law (except for commercial paper issued under Section
4(2) of the Securities Act of 1933).
Underwriting
The Fund will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of restricted securities which
the Fund may purchase pursuant to its investment objectives,
policies, and limitations.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio
securities up to one-third of the value of its total assets. This
shall not prevent the purchase or holding of corporate bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment
objectives and policies.
Concentration of Investments
The Fund will not purchase portfolio instruments if, as a result
of such purchase, 25% or more of the value of its total assets
would be invested in any one industry.
Diversification of Investments
The Fund will not invest more than 5% of the value of its total
assets in securities of one issuer (except cash and cash items,
repurchase agreements, and U.S. government obligations) or acquire
more than 10% of any class of voting securities of any issuer. For
these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of
priorities, series, designations, or other differences.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Directors without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in portfolio instruments of unseasoned issuers, including
their predecessors, that have been in operation for less than
three years.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment
companies except as part of a merger, consolidation, or other
acquisition.
Arbitrage Transactions
The Fund will not engage in arbitrage transactions.
Acquiring Securities
The Fund will not purchase securities of a company for the purpose
of exercising control or management. However, the Fund may
purchase up to 10% of the voting securities of any one issuer and
may exercise its voting powers consistent with the best interests
of the Fund. In addition, the Fund, other companies advised by the
Adviser, and other affiliated companies may together buy and hold
substantial amounts of voting stock of a company and may vote
together in regard to such company's affairs. In some cases, the
Fund and its affiliates might collectively be considered to be in
control of such company. In some cases, Directors and other
persons associated with the Fund and its affiliates might possibly
become directors of companies in which the Fund holds stock.
Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Fund
The Fund will not purchase or retain the securities of any issuer
if the officers and Directors of the Fund or its Adviser owning
individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
Writing Covered Call Options and Purchasing Put Options
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. The
Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio. The Fund will not
commit more than 5% of the value of its total assets to premiums
on open option positions.
Investing in Warrants
The Fund will not invest more than 5% of its total assets in
warrants. No more than 2% of this 5% may be warrants which are not
listed on the New York or American Stock Exchange.
Investing in Illiquid Securities
The Fund will not invest more than 15% of its net assets in
illiquid securities, including certain restricted securities
(except for Section 4(2) commercial paper and restricted
securities which the Adviser believes can be sold within seven
days), non-negotiable time deposits in repurchase agreements
providing for settlement in more than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Fund did not borrow money, invest in reverse repurchase agreements,
pledge securities, or sell securities short in excess of 5% of the value
of its total assets during the last fiscal year and has no present
intention to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan association having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."
To comply with registration requirements in certain states, the Fund (1)
will not invest in real estate limited partnerships or oil, gas, or
other mineral leases.
LIBERTY EQUITY INCOME FUND, INC., MANAGEMENT
Officers and Directors are listed with their addresses, principal
occupations, and present positions.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, President and Director of the Fund.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
Village
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President and Director
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Fund.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding
Shares.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; The Medalist Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; The Virtus Funds; and World Investment
Series, Inc.
Fund Ownership
As of May 5, 1995, the following shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund: Merrill Lynch
Pierce Fenner & Smith (as record owner holding Class A Shares for
its clients), Jacksonville, Florida, owned approximately 1,228,254
Class A Shares (12..83%).
As of May 5, 1995, the following shareholder of record owned 5% or
more of the outstanding Class C Shares of the Fund: Merrill Lynch
Pierce Fenner & Smith (as record owner holding Class C Shares for
its clients), Jacksonville, Florida, owned approximately 1,269,361
Class C Shares (48.36%).
As of May 5, 1995, the following shareholders of record owned 5%
or more of the outstanding Fortress Shares of the Fund: Merrill
Lynch Pierce Fenner & Smith (as record owner holding Fortress
Shares for its clients), Jacksonville, Florida, owned
approximately 791,071 Fortress Shares (25.84%).
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +
John F. Donahue, $0 $0 for the Fund and
Chairman and Director 68 other investment companies in the Fund
Complex
John T. Conroy, Jr., $1,247 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
William J. Copeland, $1,247 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
J. Christopher Donahue, $0 $0 for the Fund and
Vice President and Director 14 other investment companies in the Fund
Complex
James E. Dowd, $1,247 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,132 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,247 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Peter E. Madden, $959 $90,563 for the Fund and
Director 64 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,132 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
John E. Murray, Jr., $0 $0 for the Fund and
Director 64 other investment companies in the Fund
Complex
Wesley W. Posvar, $1,132 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,132 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended March 31, 1995.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the respective prospectuses. During the
fiscal years ended March 31, 1995, 1994, and 1993, the Fund's Adviser
earned $960,072, $398,315, and $157,855, respectively, of which
$570,904, $398,315 and $157,855 were voluntarily waived because of
undertakings to limit the Fund's expenses.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1.5% per year of the remaining average
net assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the respective prospectuses. Prior to March 1, 1994,
Federated Administrative Services, Inc., also a subsidiary of Federated
Investors, served as the Fund's administrator. For the fiscal year ended
March 31, 1995, Federated Administrative Services earned $200,945. For
the fiscal year ended March 31, 1994, the Administrators collectively
earned $308,878. For the fiscal year ended March 31, 1993, Federated
Administrative Services, Inc., earned $213,672. Dr. Henry J. Gailliot,
an officer of Federated Advisers, the Fund's investment adviser, holds
approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type, and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund
or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To
the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.
During the fiscal years ended March 31, 1995, 1994, and 1993, the Fund
paid total brokerage commissions of $363,114, $125,372, and $36,022,
respectively.
PURCHASING SHARES
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales
load on Class A Shares and Fortress Shares only) on days the New York
Stock Exchange is open for business. The procedure for purchasing Shares
of the Fund is explained in the respective prospectuses under "How to
Purchase Shares" and "Investing in Fortress Shares."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Directors expects that the Fund
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment
objectives. By identifying potential investors whose needs are served by
the Fund's objectives, and properly servicing these accounts, it may be
possible to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the fiscal year ended March 31, 1995, payments in the amount of
$217,661 and $76,543, respectively, were made pursuant to the
Distribution Plans for Class C Shares and Fortress Shares. During the
period from September 27, 1994 to March 31, 1995, payments in the amount
of $9,714 were made pursuant to the Distribution Plan for Class B
Shares.
In addition, for the fiscal year ended March 31, 1995, payments in the
amount of $343,729 were made pursuant to a Shareholder Services Plan
adopted by the Fund.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them
to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, the
Adviser, and Federated Securities Corp., or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp., and their spouses and children under 21, may buy Shares at net
asset value without a sales load and are not subject to a contingent
deferred sales charge (Class B Shares, Class C Shares, and Fortress
Shares only) to the extent the financial institution through which the
Shares are sold agrees to waive any initial payment to which it might
otherwise be entitled. Shares may also be sold without a sales load to
trusts or pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for
Shares, or they may exchange a combination of convertible securities and
cash for Shares. Any securities to be exchanged must meet the investment
objective and policies of the Fund, must have a readily ascertainable
market value, must be liquid, and must not be subject to restrictions on
resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund
reserves the right to reject any security, even though it appears on the
list, and the right to amend the list of acceptable securities at any
time without notice to brokers or investors.
An investment broker acting for an investor should forward the
securities in negotiable form with an authorized letter of transmittal
to Federated Securities Corp. Federated Securities Corp. will determine
that transmittal papers are in good order and will forward them to the
Fund's custodian, State Street Bank and Trust Company. The Fund will
notify the broker of its acceptance and valuation of the securities
within five business days of their receipt by State Street Bank and
Trust Company.
The Fund values such securities in the same manner as the Fund values
its portfolio securities. The basis of the exchange will depend upon the
net asset value of Shares on the day the securities are valued. One
Share will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities
become the property of the Fund, along with the securities.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Shares, a gain or loss may be realized by
the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:
o according to the last sale price on a national securities
exchange, if available, or on the basis of prices provided by an
independent pricing service;
o for most short-term obligations, according to the average of the
last offer to buy and the last offer to sell the security, as
provided by independent pricing services;
o for options traded in the over-the-counter market, according to
the mean between the last bid and the last asked price for the
option as provided by an investment dealer or other financial
institution that deals in the option;
o for short-term obligations with remaining maturities of 60 days or
less at the time of purchase, at amortized cost; or
o at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
EXCHANGE PRIVILEGE (FORTRESS SHARES ONLY)
This section relates only to Fortress Shares of the Fund. For
information regarding the Exchange Privilege for Class A Shares, Class B
Shares, and Class C Shares of the Fund, please see the combined
prospectus for these classes of Shares.
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
Fortress Shares for shares in other Fortress Funds (which are sold with
a sales load different from that of the Fund or with no sales load and
which are advised by subsidiaries or affiliates of Federated Investors)
without the assesment of a contingent deferred sales charge on the
exchanged Shares.
REDUCED SALES LOAD
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales load, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Fortress Shares having a
net asset value of at least $1,500. Before the exchange, the shareholder
must receive a prospectus of the fund for which the exchange is being
made.
This privilege is available to shareholders resident in any state in
which the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, Fortress Shares
submitted for exchange are redeemed and the proceeds invested in shares
of the other fund.
Further information on the exchange privilege and prospectuses for
Fortress Funds or certain Federated funds are available by calling the
Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a short-term or
long-term capital gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain Federated funds
may be given in writing or by telephone. Written instructions may
require a signature guarantee.
Telephone Instructions
Telephone instructions made by the investor may be carried out
only if a telephone authorization form completed by the investor
is on file with the Fund. If the instructions are given by a
broker, a telephone authorization form completed by the broker
must be on file with the Fund. Shares may be exchanged between two
funds by telephone only if the two funds have identical
shareholder registrations.
Telephoned exchange instructions may be recorded and will be
binding upon the shareholder. They must be received by the Fund
before 4:00 p.m. (Eastern time) for Shares to be exchanged that
day. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone
instructions.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions of Class B
Shares, Class C Shares, and Fortress Shares may be subject to a
contingent deferred sales charge. Redemption procedures are explained in
the respective prospectuses under "How to Redeem Shares" and "Redeeming
Fortress Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Fortress Shares redeemed within one to four years of purchase may be
subject to a contingent deferred sales charge. The amount of the
contingent deferred sales charge is based upon the amount of the advance
payment paid at the time of purchase by the distributor to the financial
institutions for services rendered, and the length of time the investor
remains a shareholder in the Fund. Should financial institutions elect
to receive an amount less than the advance payment that is stated in the
prospectus for servicing a particular shareholder, the contingent
deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price, in whole
or in part, by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares
for any shareholder in cash up to the lesser of $250,000 or 1% of a
class of Shares' net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special
tax treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. The dividends received
deduction for corporations will apply to ordinary income distributions
to the extent the distribution represents amounts that would qualify for
the dividends received deduction to the Fund if the Fund were a regular
corporation and to the extent designated by the Fund as so qualifying.
These dividends, and any short-term capital gains, are taxable as
ordinary income.
Capital Gains
Capital gains or losses may be realized on the sale of portfolio
securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because
of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such,
whether they are taken in cash or reinvested, and regardless of
the length of time the shareholder has owned the Shares. Any loss
by a shareholder on Shares held for less than six months and sold
after a capital gains distribution will be treated as a long-term
capital loss to the extent of the capital gains distribution.
TOTAL RETURN
The Fund's average annual total returns for Class A Shares for the one-
year and five-year periods ended March 31, 1995 and for the period from
April 30, 1987 to March 31, 1995, were 2.38%, 11.11% and 9.81%,
respectively.
The Fund's cumulative total return for Class B Shares, for the period
from September 27, 1994 to March 31, 1995, was (1.48%).
The Fund's average annual total return for Class C Shares for the fiscal
year ended March 31, 1995 and the period from May 3, 1993 (date of
initial public offering), to March 31, 1995, were 6.49% and 6.91%,
respectively.
The Fund's average annual total return for Fortress Shares for the
fiscal year ended March 31, 1995 and for the period from November 12,
1993 (date of initial public offering), to March 31, 1995 were 5.97% and
0.90%, respectively.
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional Shares, assuming a quarterly
reinvestment of all dividends and distributions. Any applicable
contingent deferred sales charge is deducted from the ending value of
the investments based on the lesser of the original purchase price or
the offering price of Shares redeemed.
Cumulative total return reflects Class B Shares' total performance over
a specific period of time. This total return assumes and is reduced by
the payment of the maximum sales load and contingent deferred sales
charge, if applicable. The Class B Shares' total return is
representative of only six months of investment activity since the date
of initial public offering.
YIELD
The Fund's yields for Class A Shares, Class B Shares, Class C Shares,
and Fortress Shares, were 3.19%, 2.65%, 2.64% and 3.10%, respectively,
for the thirty-day period ended March 31, 1995.
The yield for all classes of Shares of the Fund is determined by
dividing the net investment income per Share (as defined by the
Securities and Exchange Commission) earned by any class of Shares over a
thirty-day period by the maximum offering price per Share of any class
of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by any class
of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends
or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in any class of Shares, the performance will be reduced for those
shareholders paying those fees.
CURRENT DISTRIBUTIONS
Class A Shares', Class B Shares', Class C Shares', and Fortress Shares
average net annualized current distributions rate for the thirty days
ended March 31, 1995, were 3.73%, 3.29%, 3.31% and 3.73%, respectively.
Each class of Shares calculates its current distributions daily based
upon its past twelve months' income dividends and short-term capital
gains distributions per Share divided by its offering price per Share on
that day. Each class of Shares may reduce the time period upon which it
bases its calculation of current distributions if the Adviser believes a
shortened period would be more representative in light of current market
conditions.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Fund's or a class of Shares' expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
The Fund may compare the performance of equity income funds to other
types of stock funds and indices.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Fund uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the
convertible securities and fixed income funds categories in
advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected blue-chip industrial corporations as well as public
utility and transportation companies. The DJIA indicates daily
changes in the average price of stocks in any of its categories.
It also reports total sales for each group of industries. Because
it represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500
COMMON STOCKS is a composite index of common stocks in industry,
transportation, and financial and public utility companies which
compares total returns of funds whose portfolios are invested
primarily in common stocks. In addition, the Standard & Poor's
index assumes reinvestment of all dividends paid by stocks listed
on the index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated, in the
Standard & Poor's figures.
o MORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
The Fund may compare the performance of equity income funds to other
types of stock funds and indices.
In addition, the Fund will, from time to time, use the following
standard convertible securities indices against which it will compare
its performance: Goldman Sachs Convertible 100; Kidder Peabody
Convertible Bond Index; Value Line Convertible Bond Index; and Dow Jones
Utility Index.
Advertisements and other sales literature for any class of Shares may
quote total returns which are calculated on nonstandardized base
periods. These total returns also represent the historic change in the
value of an investment in any class of Shares based on quarterly
reinvestment of dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class
of Shares using charts, graphs, and descriptions, compared to federally
insured bank products, including certificates of deposit and time
deposits, and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales
literature for the Fund may use charts and graphs to illustrate the
principals of dollar-cost averaging and may disclose the amount of
dividends paid by the Fund over certain periods of time.
Advertisements may quote performance information which does not reflect
the effect of a sales load or contingent deferred sales charge, as
applicable.
ABOUT FEDERATED INVESTORS
Federated is dedicated to meeting investor needs which is reflected in
its investment decision making structured, straightforward, and
consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As
of December 31, 1994, Federated managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's value-
oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system
that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1994, Federated managed
8 money market funds, 5 investment grade and 4 high yield bond funds
with assets approximating $7.4 billion, $.9 billion and $.8 billion,
respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 20 years of
experience in the corporate bond sector. In 1972, Federated introduced
one of the first high-yield bond funds in the industry. In 17 years
ending December 1994, Federated's high-yield portfolios experienced a
default rate of just 1.86%, versus 3.10% for the market as a whole. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200
billion.
J. Thomas Madden, Executive Vice President, oversees Federated's equity
and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated's domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing
their financial goals through mutual funds. These
investors, as well as businesses and institutions, have
entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications.
Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate
accounts and mutual funds for a variety of applications,
including defined benefit and defined contribution
programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The
marketing effort to these institutional clients is headed
by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships
with more than 1,500 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed
by Mark R. Gensheimer, Executive Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major
brokerage firms nationwide-including 200 New York Stock Exchange
firms-supported by more wholesalers than any other mutual fund
distributor. The marketing effort to these firms is headed by James F.
Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1995, are
incorporated herein by reference to the Annual Report of the Fund dated
March 31, 1995 (File Nos. 33-6901 and 811-4743). A copy of this Report
may be obtained without charge by contacting the Fund.
APPENDIX
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation.
A-2-Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1-Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
P-2-Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated F-1+.
F-2-Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment.
530461102
530461409
530461201
530461300
8062806B (5/95)
LIBERTY EQUITY INCOME FUND, INC.
FORTRESS SHARES
PROSPECTUS
The Fortress Shares of Liberty Equity Income Fund, Inc. (the "Fund") represent
interests in an open-end, diversified management investment company (a mutual
fund) investing primarily in income-producing equity securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Fortress Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, Class C Shares, and Fortress Shares dated May 31,
1995, with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by reference
into this prospectus. You may request a copy of the Combined Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1995
--------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................2
General Information............................................................3
Fortress Investment Program....................................................4
Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Portfolio Turnover...........................................................9
Investment Limitations......................................................10
Net Asset Value...............................................................11
Investing in Fortress Shares..................................................11
Share Purchases.............................................................11
Minimum Investment Required.................................................12
What Shares Cost............................................................12
Eliminating the Sales Load..................................................13
Systematic Investment Program...............................................14
Exchanging Securities for Fund Shares.......................................14
Exchange Privileges.........................................................14
Certificates and Confirmations..............................................15
Dividends and Distributions.................................................15
Capital Gains...............................................................15
Redeeming Fortress Shares.....................................................16
Through a Financial Institution.............................................16
Directly By Mail............................................................16
Contingent Deferred Sales Charge............................................17
Systematic Withdrawal Program...............................................18
Accounts with Low Balances..................................................18
Exchanges for Shares of Other Funds.........................................18
Fund Information..............................................................19
Management of the Fund......................................................19
Distribution of Fortress Shares.............................................19
Administration of the Fund..................................................21
Brokerage Transactions......................................................21
Shareholder Information.......................................................22
Voting Rights...............................................................22
Tax Information...............................................................22
Federal Income Tax..........................................................22
Pennsylvania Personal Property Taxes........................................22
Performance Information.......................................................23
Other Classes of Shares.......................................................24
Appendix......................................................................25
--------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
LIBERTY EQUITY INCOME FUND, INC.
<TABLE>
<S> <C> <C>
FORTRESS SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).................................... 1.00%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)......................... None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) (1)............................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee................................................................................................... None
ANNUAL FORTRESS SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.24%
12b-1 Fee...................................................................................................... 0.25%
Total Other Expenses........................................................................................... 0.78%
Shareholder Services Fee (after waiver) (3)..................................................... 0.23%
Total Fortress Shares Operating Expenses (4)........................................................... 1.27%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
one year of their purchase date. For a more complete description, see
"Redeeming Fortress Shares".
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(3) The maximum shareholder services fee is 0.25%.
(4) The total Fortress Shares operating expenses in the table above are based
on expenses expected during the fiscal year ending March 31, 1996. The
total Fortress Shares operating expenses were 1.24% for the fiscal year
ended March 31, 1995, and were 1.60% absent the voluntary waiver of a
portion of the management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Fortress Shares of the Fund
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Fortress Shares" and "Fund
Information". Wire transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each time period:................. $33 $50 $79 $162
You would pay the following expenses on the same investment, assuming no
redemption....................................................................... $23 $50 $79 $162
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--FORTRESS SHARES
LIBERTY EQUITY INCOME FUND, INC.
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated May 12, 1995, on the Fund's financial
statements for the year ended March 31, 1995, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's Financial Statements and Notes thereto, which may be obtained
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C>
1995 1994(A)
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.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended March 31, 1995, which can be obtained
free of charge.
-------------------------------------------------------------------------------
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On December 21, 1992, shareholders of the Fund approved changing the name
of the Fund from Convertible Securities and Income, Inc. to Liberty Equity
Income Fund, Inc. The Fund's address is Liberty Center, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors (the "Directors") has established four classes of shares,
known as Fortress Shares, Class A Shares, Class B Shares, and Class C Shares.
This prospectus relates only to the Fortress Shares ("Shares" or "Fortress
Shares", as the context requires) of the Fund.
Shares of the Fund are designed primarily for individuals and institutions
seeking high current income and capital appreciation through a professionally
managed, diversified portfolio of convertible securities. A minimum initial
investment of $1,500 is required, unless the investment is in a retirement
account, in which case the minimum initial investment is $50.
Shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed on Shares, other than shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase date.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including investing in convertible securities and zero coupon convertible
securities, entering into repurchase agreements, investing in when-issued and
delayed delivery securities, lending portfolio securities, the purchasing or
writing of put and call options, the purchasing and selling of financial futures
and options on futures, and investing in restricted and illiquid securities,
foreign securities and high yield corporate debt obligations. These risks are
described under "Investment Policies."
--------------------------------------------------------------------------------
FORTRESS INVESTMENT PROGRAM
The Fortress Shares class is a member of a family of funds ("Fortress Funds"),
collectively known as the Fortress Investment Program. The other funds in the
Program are:
American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
California Municipal Income Fund, providing current income exempt from federal
regular income tax and California personal income taxes;
Fortress Adjustable Rate U.S. Government Fund, Inc., providing current income
consistent with lower volatility of principal through a diversified portfolio
of adjustable and floating rate mortgage securities which are issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
Fortress Bond Fund, providing current income primarily through high-quality
corporate debt;
Fortress Municipal Income Fund, Inc., providing a high level of current income
generally exempt from the federal regular income tax by investing primarily in
a diversified portfolio of municipal bonds;
Fortress Utility Fund, Inc., providing high current income and moderate capital
appreciation primarily through equity and debt securities of utility companies;
Government Income Securities, Inc., providing current income through long-term
U.S. government securities;
Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value;
Limited Term Municipal Fund, providing a high level of current income which is
exempt from federal regular income tax consistent with the preservation of
capital;
Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
New York Municipal Income Fund, providing current income exempt from federal
regular income tax, New York personal income taxes, and New York City income
taxes;
Ohio Municipal Income Fund, providing current income exempt from federal
regular income tax and Ohio personal income taxes;
Strategic Income Fund, providing high current income through investing in
domestic corporate debt obligations, U.S. government securities, and foreign
government and corporate debt obligations; and
World Utility Fund, providing total return by investing primarily in securities
issued by domestic and foreign companies in the utilities industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles, and by providing
the investment services of proven, professional investment advisers.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Fortress."
--------------------------------------------------------------------------------
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks, and securities (including debt securities) that are
convertible into common stocks. The portion of the Fund's total assets invested
in common stocks, preferred stocks, and convertible securities will vary
according to the Fund's assessment of market and economic conditions and
outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The Fund invests in convertible
bonds rated "B" or higher by Standard & Poor's Rating Group ("Standard &
Poor's"), or Moody's Investors Service, Inc. ("Moody's") at the time of
investment, or if unrated, of comparable quality. If a convertible bond is rated
below "B" according to the characteristics set forth here after the Fund has
purchased it, the Fund is not required to drop the convertible bond from the
portfolio, but will consider appropriate action. The investment characteristics
of each convertible security vary widely, which allows convertible securities to
be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment characteristics of
the convertible security as a fixed-income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS
The Fund may also invest temporarily, in amounts of 35% or less of the Fund's
assets, in cash and cash items during times of unusual market conditions to
maintain liquidity. Cash items may include the following short-term obligations:
commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and bankers'
acceptances);
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and other short-term instruments.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government or other securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. The Fund will write
call options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND
OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the Adviser to predict market conditions
based upon certain economic analysis and factors. There is a risk that the
prices of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest up to 10% of its net assets in restricted securities.
This restriction is not applicable to commercial paper issued under Section 4(2)
of the Securities Act of 1933. Restricted securities are any securities in which
the Fund may otherwise invest pursuant to its investment objectives and policies
but which are subject to restriction on resale under federal securities law. The
Fund will limit investments in illiquid securities, including certain restricted
securities determined by the Directors not to be liquid, non-negotiable time
deposits and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity.
FOREIGN SECURITIES
The Fund reserves the right to invest in foreign securities which are traded
publicly in the United States. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic issuers. These considerations
include the possibility of expropriation, the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The
Adviser will consider these and other factors before investing in foreign
securities and will not make such investments unless, in its opinion, such
investments will meet the Fund's standards and objectives. The Fund will only
purchase securities issued in U.S. dollar denominations.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS
The Fund may invest up to 35% of the value of its total assets in corporate debt
obligations that are not investment grade bonds or are not rated but are
determined by the Adviser to be of comparable quality. Securities which are
rated BBB or lower by Standard & Poor's or Baa or lower by Moody's either have
speculative characteristics or are speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligations. A
description of the rating categories is contained in the Appendix to this
Prospectus. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its assets in
corporate debt obligations that are not investment-grade bonds (excluding
securities convertible into equity securities) during the current fiscal year.
The Adviser attempts to reduce the risks described above through diversification
of the portfolio and by credit analysis of each issuer as well as by monitoring
broad economic trends and corporate and legislative developments.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge securities except
that the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings;
sell securities short except, under strict limitations, it may maintain open
short positions so long as not more than 10% of the value of its net assets is
held as collateral for those positions;
lend any of its assets except portfolio securities up to one-third of the value
of its total assets;
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant to its investment
objectives, policies, and limitations; or
invest more than 5% of the value of its total assets in securities of one
issuer (except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of any
issuer. For these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
commit more than 5% of the value of its total assets to premiums on open put
option positions; or
invest more than 5% of its total assets in warrants.
--------------------------------------------------------------------------------
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Fortress Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Fortress Shares in the liabilities of the Fund and those attributable to
Fortress Shares, and dividing the remainder by the total number of Fortress
Shares outstanding. The net asset value for Fortress Shares may differ from that
of Class A Shares, Class B Shares, and Class C Shares due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled.
--------------------------------------------------------------------------------
INVESTING IN FORTRESS SHARES
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution who has a sales agreement with the
distributor, or directly from the distributor, Federated Securities Corp.,
either by mail or by wire. The Fund reserves the right to reject any purchase
request.
THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders through a financial
institution are considered received when the Fund is notified of the purchase
order. Purchase orders through a registered broker/dealer must be received by
the broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker
to the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased
at that day's price. Purchase orders through other financial institutions must
be received by the financial institution and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership
periods (see "Other Payments to Financial Institutions").
DIRECTLY BY MAIL
To purchase Shares by mail directly from Federated Securities Corp.:
complete and sign the new account form available from the Fund;
enclose a check made payable to Liberty Equity Income Fund, Inc.-Fortress
Shares; and
mail both to the Fund's transfer agent, Federated Services Company, P.O. Box
8600, Boston, MA 02266-8600.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
DIRECTLY BY WIRE
To purchase Shares directly from Federated Securities Corp. by Federal Reserve
wire, call the Fund. All information needed will be taken over the telephone,
and the order is considered received when the transfer agent's bank receives
payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500, except for an IRA account,
which requires a minimum initial investment of $50. Subsequent investments must
be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales load for purchases of $1 million or
more. In addition, no sales load is imposed for Shares purchased through bank
trust departments or investment advisers registered under the Investment
Advisers Act of 1940, as amended, purchasing on behalf of their clients, or by
sales representatives, Directors, and employees of the Fund, the Adviser, and
Federated Securities Corp., or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp., their spouses and
children under age 21, or any trusts or pension or profit-sharing plans for
these persons or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp., or its
affiliates. Unaffiliated institutions through whom Shares are purchased may
charge fees for services provided which may be related to the ownership of Fund
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the institution with regard to services provided, the
fees charged for these services, and any restrictions and limitations imposed.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances, described under "Redeeming Fortress Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
DEALER CONCESSION
For sales of Shares, broker/dealers will normally receive 100% of the applicable
sales load. Any portion of the sales load which is not paid to a broker/dealer
will be retained by the distributor. However, from time to time, and at the sole
discretion of the distributor, all or a part of that portion may be paid to a
dealer. The sales load for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp. Federated
Securities Corp. may pay fees to banks out of the sales load in exchange for
sales and/or administrative services performed on behalf of the bank's customers
in connection with the initiation of customer accounts and purchases of Shares.
ELIMINATING THE SALES LOAD
The sales load can be eliminated on the purchase of Shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES
There is no sales load for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales load. If an additional
purchase of Shares is made, the Fund will consider the previous purchases still
invested in the Fund. For example, if a shareholder already owns Shares having a
current value at the public offering price of $900,000 and he purchases $100,000
more at the current public offering price, there will be no sales load on the
additional purchase. The Fund will also combine purchases for the purpose of
reducing the contingent deferred sales charge imposed on some Share redemptions.
For example, if a shareholder already owns Shares having current value at the
public offering price of $1 million and purchases an additional $1 million at
the current public offering price, the applicable contingent deferred sales
charge would be reduced to.50% of those additional Shares. For more information
on the levels of contingent deferred sales charges and holding periods, see the
section entitled "Contingent Deferred Sales Charge."
To receive the sales load elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by his financial institution at the time the purchase is made that
Shares are already owned or that purchases are being combined. The Fund will
eliminate the sales load and/or reduce the contingent deferred sales charge
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $1 million of Shares over the next
13 months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load elimination
depending on the amount actually purchased within the 13-month period and a
provision for the Fund's custodian to hold 1.00% of the total amount intended to
be purchased in escrow (in Shares) until such purchase is completed.
The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more of Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales load.
This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."
This letter of intent will not obligate the shareholder to purchase Shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales load on such purchases
will not be adjusted to reflect a lower sales load).
REINVESTMENT PRIVILEGE
If Shares have been redeemed, the shareholder has a one-time right, within 120
days, to reinvest the redemption proceeds at the next-determined net asset value
without any sales load. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to receive this elimination of the sales load. If the shareholder redeems
his Shares, there may be tax consequences.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load elimination, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Fortress
Investment Program, the purchase price of which includes a sales load. For
example, if a shareholder concurrently invested $400,000 in one of the other
Fortress Funds, and $600,000 in Shares, the sales load would be eliminated.
To receive this sales load elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales load
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund plus
the 1.00% sales load for purchases under $1 million. A shareholder may apply for
participation in this program through Federated Securities Corp. or his
financial institution.
EXCHANGING SECURITIES FOR
FUND SHARES
Investors may exchange certain convertible securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. From time to time the Fund will prepare a list of
securities which may be eligible for acceptance and furnish this list to brokers
upon request. Securities accepted by the Fund are valued in the same manner as
the Fund values its portfolio securities. Investors wishing to exchange
securities should first contact their investment broker, who will contact
Federated Securities Corp.
EXCHANGE PRIVILEGES
Shares in other Fortress Funds may be exchanged for Shares at net asset value
without a sales load (if previously paid) or a contingent deferred sales charge.
Also, Shares may be exchanged for shares in other Fortress Funds at net asset
value without a contingent deferred sales charge or sales load. The exchange
privilege is available to shareholders residing in any state in which the shares
being acquired may be legally sold.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares at net asset
value (plus a sales load, if applicable). Shareholders using this privilege must
exchange Shares having a net asset value equal to the minimum investment
requirements of the fund into which the exchange is being made. Shareholders who
desire to automatically exchange Shares of a predetermined amount on a monthly,
quarterly, or annual basis may take advantage of a systematic exchange
privilege. Further information on these exchange privileges is available by
calling Federated Securities Corp. or the shareholder's financial institution.
Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares on payment dates at the ex-dividend date net asset value
without a sales load, unless shareholders request cash payments on the new
account form or by writing to the transfer agent. All shareholders on the record
date are entitled to the dividend. If Shares are redeemed or exchanged prior to
the record date or purchased after the record date, those Shares are not
entitled to that month's dividend.
CAPITAL GAINS
Distributions of any net realized long-term capital gains will be made at least
once every twelve months.
-------------------------------------------------------------------------------
REDEEMING FORTRESS SHARES
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
through a financial institution or directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. In the event of drastic economic
or market changes, a shareholder may experience difficulty in redeeming by
telephone. If such a case should occur, another method of redemption, such as
"Directly by Mail", should be considered.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
DIRECTLY BY MAIL
Shareholders may also redeem Shares by sending a written request to Federated
Services Company, P.O. Box 8600, Boston, MA 02266-8600. This written request
must include the shareholder's name, the Fund name and class of shares, the
account number, and the share or dollar amount to be redeemed. Shares will be
redeemed at their net asset value, less any applicable contingent deferred sales
charge, next determined after the Fund receives the redemption request.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES
Shareholders requesting a redemption of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
of all registered owners on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance
Fund, which is administered by the Federal Deposit Insurance Corporation
("FDIC"); a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund, which is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT
A check for the proceeds is mailed within seven days after receipt of proper
written redemption instructions from a broker or from the shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within certain periods of
the purchase date of those Shares will be charged a contingent deferred sales
charge by the Fund's distributor of the lesser of the original price or the net
asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
Contingent
Amount of Deferred
Purchase Shares Held Sales Charge
<S> <C> <C>
Up to $1,999,999 4 years or less 1%
$2,000,000 to $4,999,999 2 years or less .50%
$5,000,000 or more 1 year or less .25%
</TABLE>
To the extent that a shareholder exchanges between or among Fortress Shares in
other funds in the Fortress Investment Program, the time for which the
exchanged-for Shares were held will be added, or "tacked", to the time for which
the exchanged-from Shares were held for purposes of satisfying the one-year
holding period.
In instances in which Shares have been acquired in exchange for shares in other
Fortress Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: 1) first of shares acquired through the reinvestment of dividends and
long-term capital gains, 2) second of purchases of shares occurring prior to the
number of years necessary to satisfy the applicable holding period, and 3)
finally of purchases of shares occurring within the current holding period. For
accounts with shares subject to multiple share holding periods, the redemption
sequence will be determined first, with reinvested dividends and long-term
capital gains, and second, on a first-in, first-out basis.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for
qualified plans, an IRA, Keogh Plan, or a custodial account does not extend to
account transfers, rollovers, and other redemptions made for purposes of
reinvestment. Contingent deferred sales charges are not charged in connection
with exchanges of Shares for shares in other Fortress Funds, or in connection
with redemptions by the Fund of accounts with low balances. Shares of the Fund
originally purchased through a bank trust department or investment adviser
registered under the Investment Advisers Act of 1940, as amended, and
third-party administrators acting on behalf of deferred contribution plans, are
not subject to the contingent deferred sales charge, to the extent that no
payment was advanced for purchases made by such entities.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund. For this reason, payments under this program should not be considered
as yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have invested at least
$10,000 in the Fund (at current offering price).
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales load and
contingent deferred sales charge, it is not advisable for shareholders to be
purchasing Shares while participating in this program.
A contingent deferred sales charge is charged for Shares redeemed through this
program within four years of their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below $1,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
EXCHANGES FOR SHARES OF
OTHER FUNDS
Shares may be exchanged for shares in other Fortress Funds at net asset value
without a contingent deferred sales charge or a sales load.
Shares may also be exchanged for shares in other Federated Funds which are
advised by subsidiaries or affiliates of Federated Investors. With the exception
of exchanges into other Fortress Funds, such exchanges will be subject to a
contingent deferred sales charge and possibly a sales load.
Shareholders using this privilege must exchange shares having a net asset value
which at least meets the minimum investment required for the fund into which the
exchange is being made. A shareholder may obtain information on the exchange
privilege, and may obtain prospectuses for other Fortress Funds and Federated
Funds by calling Federated Securities Corp. or his financial institution.
-------------------------------------------------------------------------------
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .60 of 1% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest investment mutual fund
investment managers in the United States. With more than 1,750 employees,
Federated continues to be led by the management who founded the company in 1955.
Federated funds are presently at work in and through 4,000 financial
institutions nationwide. More than 100,000 investment professionals have
selected Federated funds for their clients.
Christopher H. Wiles has been the Fund's portfolio manager since August of 1991.
Mr. Wiles joined Federated Investors in 1990 and has been a Vice President of
the Adviser since 1992. Mr. Wiles served as Assistant Vice President of the
Fund's investment adviser from 1990 until 1992. Mr. Wiles was a portfolio
manager at Mellon Bank from 1986 until 1990. Mr. Wiles is a Chartered Financial
Analyst and received his M.B.A. in Finance from Cleveland State University.
DISTRIBUTION OF FORTRESS SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER
SERVICES PLANS
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), the Fund will pay to the distributor an amount,
computed at an annual rate of .25 of 1% of the average daily net asset value of
Fortress Shares to finance any activity which is principally intended to result
in the sale of shares subject to the Distribution Plan. The distributor may
select financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers, and broker/dealers to provide sales support services
as agents for their clients or customers. The Fund is not currently making
payments under the Distribution Plan, nor does it anticipate doing so in the
immediate future.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Fortress Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
OTHER PAYMENTS TO
FINANCIAL INSTITUTIONS
The distributor will pay financial institutions, for distribution and/or
administrative services, an amount equal to 1.00% of the offering price of the
Shares acquired by their clients or customers on purchases up to $1,999,999,
.50% of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of
the offering price on purchases of $5,000,000 or more. (This fee is in addition
to the 1.00% sales load on purchases of less that $1 million.) The financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include participating in sales,
educational and training seminars at recreational-type facilities, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Directors will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for Shares of the Fund and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with the dealers, the Adviser will generally utilize those who
are recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. In selecting among
firms believed to meet these criteria, the Adviser may give consideration to
those firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
--------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland Corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
--------------------------------------------------------------------------------
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA PERSONAL
PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
--------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and yield for Fortress
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Fortress Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Fortress Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
Fortress Shares over a thirty-day period by the maximum offering price per share
of Fortress Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Fortress Shares, and therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Fortress Shares. Because Class A Shares and Fortress
Shares may be subject to lower Rule 12b-1 fees, the yield for Class A Shares and
Fortress Shares, for the same period, may exceed that of Class B Shares and
Class C Shares. Because Class A Shares are subject to a higher maximum sales
load, the total return for Class B Shares, Class C Shares, and Fortress Shares
for the same period will exceed that of Class A Shares. Depending on the dollar
amount invested and the time period for which any class of shares is held, the
total return for any particular class may exceed that of another.
From time to time, advertisements for the Class A Shares, Class B Shares, Class
C Shares and Fortress Shares of the Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, Class C Shares and Fortress
Shares to certain indices.
--------------------------------------------------------------------------------
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of financial
institutions subject to certain differences.
Class A Shares are sold subject to a front-end sales load and a Shareholder
Services Plan. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in which
the minimum investment is $50.
Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.
Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.
Class A Shares, Class B Shares and Class C Shares and Fortress Shares are
subject to certain of the same expenses. Expense differences, however, between
Class A Shares, Class B Shares and C Shares and Fortress Shares may affect the
performance of each class.
To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call 1-800-235-4669 or contact their
financial institution.
--------------------------------------------------------------------------------
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC--Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C--The rating "C" typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is being
paid.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment or interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
LIBERTY EQUITY INCOME
FUND, INC.
FORTRESS SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
Prospectus dated May 31, 1995
FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
530461300
8062806A-FS (5/95)
LIBERTY EQUITY INCOME FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED PROSPECTUS
The shares of Liberty Equity Income Fund, Inc. (the "Fund") represent interests
in an open-end, diversified management investment company (a mutual fund)
investing primarily in income-producing equity securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares and Class C Shares of the Fund. Keep
this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, Class C Shares, and Fortress Shares dated May 31,
1995, with the Securities and Exchange Commission. The information contained in
the Combined Statement of Additional Information is incorporated by reference
into this prospectus. You may request a copy of the Combined Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1995
-------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................4
Synopsis.......................................................................7
Liberty Family of Funds........................................................8
Federated LifeTrackTM Program
(Class A Shares and Class C Shares).......................................9
Investment Information........................................................10
Investment Objective........................................................10
Investment Policies.........................................................10
Portfolio Turnover..........................................................14
Investment Limitations......................................................15
Net Asset Value...............................................................16
Investing in the Fund.........................................................16
How to Purchase Shares........................................................17
Investing in Class A Shares.................................................17
Investing in Class B Shares.................................................20
Investing in Class C Shares.................................................20
Special Purchase Features...................................................21
Exchange Privilege............................................................22
Requirements for Exchange...................................................22
Tax Consequences............................................................22
Making an Exchange..........................................................23
How to Redeem Shares..........................................................24
Special Redemption Features.................................................25
Contingent Deferred Sales Charge............................................25
Account and Share Information.................................................27
Fund Information..............................................................28
Management of the Fund......................................................28
Distribution of Shares......................................................29
Administration of the Fund..................................................31
Brokerage Transactions......................................................31
Shareholder Information.......................................................32
Voting Rights...............................................................32
Tax Information...............................................................32
Federal Income Tax..........................................................32
Pennsylvania Personal Property Taxes........................................32
Performance Information.......................................................33
Other Classes of Shares.......................................................34
Appendix......................................................................35
--------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
LIBERTY EQUITY INCOME FUND, INC.
CLASS A SHARES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.24%
12b-1 Fee........................................................................................................ None
Total Other Expenses............................................................................................. 0.76%
Shareholder Services Fee (after waiver) (3)....................................................... 0.21%
Total Class A Shares Operating Expenses (4)............................................................. 1.00%
</TABLE>
(1) Class A Shares purchased with the proceeds of a redemption of Shares of an
unaffiliated investment company purchased and sold with a sales load and
not distributed by Federated Securities Corp. may be charged a Contingent
Deferred Sales Charge of .50 of 1.00% for redemptions made within one full
year of purchase.
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(3) The maximum shareholder services fee is 0.25%.
(4) The total Class A Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class A Shares operating expenses were 1.00% for the fiscal year ended March
31, 1995, and were 1.36% absent the voluntary waiver of a portion of the
management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time
period....................................................................... $70 $85 $107 $171
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $65 $85 $107 $171
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
--------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
LIBERTY EQUITY INCOME FUND, INC.
CLASS B SHARES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)....................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)................................................ None
Exchange Fee...................................................................................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................. 0.24%
12b-1 Fee......................................................................................................... 0.75%
Total Other Expenses.............................................................................................. 0.80%
Shareholder Services Fee........................................................................... 0.25%
Total Class B Shares Operating Expenses (3)(4)............................................................ 1.79%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
(4) The total Class B Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class B Shares operating expenses were 1.80% for the fiscal year ended March
31, 1995, and were 2.27% absent the voluntary waiver of a portion of the
management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class B Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period............................................................ $75 $100
You would pay the following expenses on the same investment, assuming no redemption.................. $18 $ 56
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
--------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
LIBERTY EQUITY INCOME FUND, INC.
CLASS C SHARES
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)....................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)................................................ None
Exchange Fee...................................................................................................... None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................. 0.24%
12b-1 Fee......................................................................................................... 0.75%
Total Other Expenses.............................................................................................. 0.78%
Shareholder Services Fee (after waiver) (3)........................................................ 0.23%
Total Class C Shares Operating Expenses (4)............................................................... 1.77%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see "Redeeming
Class C Shares."
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(3) The maximum shareholder services fee is 0.25%.
(4) The total Class C Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class C Shares operating expenses were 1.76% for the fiscal year ended March
31, 1995, and were 2.12% absent the voluntary waiver of a portion of the
management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class C Shares" and "Fund
Information". Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.................. $28 $56 $96 $208
You would pay the following expenses on the same investment, assuming no
redemption....................................................................... $18 $56 $96 $208
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
LIBERTY EQUITY INCOME FUND, INC.--CLASS A SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent public auditors. Their report dated May 12, 1995, on the Fund's
financial statements for the year ended March 31, 1995, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988(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>
<S> <C>
1987(A)
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.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended March 31, 1995, which can be obtained
free of charge.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
LIBERTY EQUITY INCOME FUND, INC.--CLASS B SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent public auditors. Their report dated May 12, 1995, on the Fund's
financial statements for the year ended March 31, 1995, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.
<TABLE>
<CAPTION>
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.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended March 31, 1995, which can be obtained
free of charge.
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
LIBERTY EQUITY INCOME FUND, INC.--CLASS C SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent public auditors. Their report dated May 12, 1995, on the Fund's
financial statements for the year ended March 31, 1995, is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Fund's Financial Statements and Notes thereto, which may be
obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
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.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended March 31, 1995, which can be obtained
free of charge.
-------------------------------------------------------------------------------
SYNOPSIS
The Fund was incorporated under the laws of the State of Maryland on July 29,
1986. On December 21, 1992, shareholders of the Fund approved changing the name
of the Fund from Convertible Securities and Income, Inc. to Liberty Equity
Income Fund, Inc. The Fund's address is Liberty Center, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit
the Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors (the "Directors") has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares, and Fortress Shares
("Shares", individually and collectively as the context requires). This
prospectus relates only to the Class A Shares, Class B Shares, and Class C
Shares of the Fund.
Shares of the Fund are designed primarily for individuals and institutions
seeking high current income and capital appreciation through a professional
managed, diversified portfolio of convertible securities.
For information on how to purchase the Shares offered by this prospectus, please
refer to "How to Purchase Shares." The minimum initial investment for Class A
Shares is $500. The minimum initial investment for Class B Shares and Class C
Shares is $1500. However, the minimum initial investment for a retirement
account in any class is $50. Subsequent investments in any class must be in
amounts of at least $100, except for retirement plans which must be in amounts
of at least $50.
Class A Shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."
Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."
In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.
Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."
Federated Advisers is the investment adviser (the "Adviser") to the Fund and
receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including investing in convertible securities and zero coupon convertible
securities, entering into repurchase agreements, investing in when-issued and
delayed delivery securities, lending portfolio securities, the purchasing or
writing of put and call options, the purchasing and selling of financial futures
and options on futures, and investing in restricted and illiquid securities,
foreign securities and high-yield corporate debt obligations. These risks are
described under "Investment Policies."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty."
--------------------------------------------------------------------------------
LIBERTY FAMILY OF FUNDS
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through equity
securities;
Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated, corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;
Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal through investment grade securities;
Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and personal income taxes imposed by the state of
Michigan and Michigan municipalities, primarily through Michigan municipal
securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with the
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to
meet the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment advisers.
Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.
FEDERATED LIFETRACKTM PROGRAM (CLASS A SHARES AND CLASS C SHARES)
The Fund is also a member of the Federated LifeTrackTM Program sold through
financial representatives. The Federated LifeTrackTM Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under the
Federated LifeTrackTM Program, employers or plan trustees may select a group of
investment options to be offered in a plan which also uses the Federated
LifeTrackTM Program for recordkeeping and administrative services. Additional
fees are charged to participating plans for these services. As part of the
Federated LifeTrackTM Program, exchanges may readily be made between investment
options selected by the employer or a plan trustee.
Other funds participating in the Federated LifeTrackTM Program are: American
Leaders Fund, Inc.; Capital Growth Fund; Capital Preservation Fund; Fund for
U.S. Government Securities, Inc.; International Equity Fund; International
Income Fund; Liberty High Income Bond Fund, Inc.; Liberty Utility Fund, Inc.;
Prime Cash Series; Stock and Bond Fund, Inc.; and Strategic Income Fund.
With respect to Class A Shares, no sales load is imposed on purchases made by
qualified retirement plans with over $l million invested in funds participating
in the Federated LifeTrackTM Program.
-------------------------------------------------------------------------------
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide above average income and
capital appreciation. The investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The investment policies described below may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
ACCEPTABLE INVESTMENTS
The Fund attempts to achieve its objectives by investing at least 65% of its
assets in income-producing equity securities. Equity securities include common
stocks, preferred stocks, and securities (including debt securities) that are
convertible into common stocks. The portion of the Fund's total assets invested
in common stocks, preferred stocks, and convertible securities will vary
according to the Fund's assessment of market and economic conditions and
outlook.
The Fund's stock selection emphasizes those common stocks in each sector that
have good value, attractive yield, and dividend growth potential. The Fund will
utilize convertible securities because such securities typically offer high
yields and good potential for capital appreciation.
CONVERTIBLE SECURITIES
Convertible securities are fixed-income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The Fund invests in convertible
bonds rated "B" or higher by Standard & Poor's Rating Group ("Standard &
Poor's"), or Moody's Investors Service, Inc. ("Moody's") at the time of
investment, or if unrated, of comparable quality. If a convertible bond is rated
below "B" according to the characteristics set forth here after the Fund has
purchased it, the Fund is not required to drop the convertible bond from the
portfolio, but will consider appropriate action. The investment characteristics
of each convertible security vary widely, which allows convertible securities to
be employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non- convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objectives. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment characteristics of
the convertible security as a fixed-income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income from the security prior to the receipt of cash payments. To
maintain its qualification as a regulated investment company and avoid liability
of federal income taxes, the Fund will be required to distribute income accrued
from zero coupon convertible securities which it owns, and may have to sell
portfolio securities (perhaps at disadvantageous times) in order to generate
cash to satisfy these distribution requirements.
TEMPORARY INVESTMENTS
The Fund may also invest temporarily, in amounts of 35% or less of the Fund's
assets, in cash and cash items during times of unusual market conditions to
maintain liquidity. Cash items may include the following short-term obligations:
commercial paper and Europaper (dollar denominated commercial paper issued
outside the United States);
instruments of domestic and foreign banks and savings and loans (such as
certificates of deposit, demand and time deposits, savings shares, and bankers'
acceptances);
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and other short-term instruments.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government or other securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to one-third of the value of its total
assets to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS
The Fund may purchase put options on its portfolio securities. These options
will be used as a hedge to attempt to protect securities which the Fund holds
against decreases in value. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. The Fund will write
call options on securities either held in its portfolio or for which it has the
right to obtain without payment of further consideration or for which it has
segregated cash in the amount of any additional consideration.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Adviser.
Over-the-counter options are two party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. The Fund will not buy call
options or write put options without further notification to shareholders.
FINANCIAL FUTURES AND
OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments at a certain time
in the future. The seller of the contract agrees to make delivery of the type of
instrument called for in the contract and the buyer agrees to take delivery of
the instrument at the specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the Adviser to predict market conditions
based upon certain economic analysis and factors. There is a risk that the
prices of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Adviser could be
incorrect in its expectations about the direction or extent of market factors
such as interest rate movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market on an exchange or otherwise will exist for any
particular futures contract or option at any particular time. The Fund's ability
to establish and close out futures and options positions depends on this
secondary market.
RESTRICTED AND ILLIQUID SECURITIES
The Fund intends to invest up to 10% of its net assets in restricted securities.
This restriction is not applicable to commercial paper issued under Section 4(2)
of the Securities Act of 1933. Restricted securities are any securities in which
the Fund may otherwise invest pursuant to its investment objectives and policies
but which are subject to restriction on resale under federal securities law. The
Fund will limit investments in illiquid securities, including certain restricted
securities determined by the Directors not to be liquid, non-negotiable time
deposits and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Fund through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity.
FOREIGN SECURITIES
The Fund reserves the right to invest in foreign securities which are traded
publicly in the United States. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic issuers. These considerations
include the possibility of expropriation, the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The
Adviser will consider these and other factors before investing in foreign
securities and will not make such investments unless, in its opinion, such
investments will meet the Fund's standards and objectives. The Fund will only
purchase securities issued in U.S. dollar denominations.
HIGH-YIELD CORPORATE DEBT OBLIGATIONS
The Fund may invest up to 35% of the value of its total assets in corporate debt
obligations that are not investment grade bonds or are not rated but are
determined by the Adviser to be of comparable quality. Securities which are
rated BBB or lower by Standard & Poor's or Baa or lower by Moody's either have
speculative characteristics or are speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligations. A
description of the rating categories is contained in the Appendix to this
Prospectus. There is no lower limit with respect to rating categories for
securities in which the Fund may invest.
Corporate debt obligations that are not determined to be investment grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment grade bonds, lower rated bonds tend to reflect
short-term corporate, economic and market developments, as well as investor
perceptions of the issuer's credit quality. In addition, lower rated bonds may
be more difficult to dispose of or to value than high-rated, lower-yielding
bonds. The Fund does not intend to invest more than 5% of its assets in
corporate debt obligations that are not investment-grade bonds (excluding
securities convertible into equity securities) during the current fiscal year.
The Adviser attempts to reduce the risks described above through diversification
of the portfolio and by credit analysis of each issuer as well as by monitoring
broad economic trends and corporate and legislative developments.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Adviser believes it
is appropriate to do so in light of the Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser to the Fund does not anticipate that portfolio turnover will result in
adverse tax consequences. Any such trading will increase the Fund's portfolio
turnover rate and transaction costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements (arrangements in
which the Fund sells a portfolio instrument for a percentage of its cash value
with an agreement to buy it back on a set date) or pledge securities except
that the Fund may borrow up to one-third of the value of its total assets and
pledge up to 10% of the value of those assets to secure such borrowings;
sell securities short except, under strict limitations, it may maintain open
short positions so long as not more than 10% of the value of its net assets is
held as collateral for those positions;
lend any of its assets except portfolio securities up to one-third of the value
of its total assets;
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale of
restricted securities which the Fund may purchase pursuant to its investment
objectives, policies, and limitations; or
invest more than 5% of the value of its total assets in securities of one
issuer (except cash and cash items, repurchase agreements, and U.S. government
obligations) or acquire more than 10% of any class of voting securities of any
issuer. For these purposes, the Fund takes all common stock and all preferred
stock of an issuer each as a single class, regardless of priorities, series,
designations, or other differences.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
commit more than 5% of the value of its total assets to premiums on open put
option positions; or
invest more than 5% of its total assets in warrants.
-------------------------------------------------------------------------------
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.
The net asset value of each class of Shares of the Fund is determined at 4:00
p.m. (Eastern time), Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities that
it's net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
--------------------------------------------------------------
INVESTING IN THE FUND
This prospectus offers investors three classes of Shares that carry sales loads
and contingent deferred sales charges in different forms and amounts and which
bear different levels of expenses.
CLASS A SHARES
An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales loads. See "Reducing or
Eliminating the Sales Load." Class A Shares have no conversion feature.
CLASS B SHARES
Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.
CLASS C SHARES
Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.
--------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:
<TABLE>
<S> <C> <C> <C>
DEALER
SALES LOAD SALES LOAD CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
Less than $50,000 5.50% 5.82% 5.00%
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less
than $250,000 3.75% 3.90% 3.25%
$250,000 but less
than $500,000 2.50% 2.56% 2.25%
$500,000 but less
than $1 million 2.00% 2.04% 1.80%
$1 million or
greater 0.00% 0.00% 0.25%*
</TABLE>
*See sub-section entitled "DEALER CONCESSION."
No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Adviser Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by that institution.
Additionally, no sales load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.
No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated LifeTrackTM Program.
DEALER CONCESSION
For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales load retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales load; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price over
the first year following the purchase. Such payments are based on the original
purchase price of Shares outstanding at each month end.
The sales load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.
Effective June 1, 1994, and until further notice the entire amount of the
applicable sales load will be reallowed to dealers. In addition, the distributor
will pay dealers additional bonus payments in an amount equal to 0.50 of 1% of
the public offering price of the Shares sold.
REDUCING OR ELIMINATING
THE SALES LOAD
The sales load can be reduced or eliminated on the purchase of Class A Shares
through:
quantity discounts and accumulated purchases;
concurrent purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
purchases with proceeds from redemptions of unaffiliated investment company
Shares.
QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES
As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.
CONCURRENT PURCHASES
For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.
LETTER OF INTENT
If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in shares) until such purchase is completed.
The Shares held in escrow in the shareholder's account will be released upon the
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will be aggregated
to provide a purchase credit towards fulfillment of the letter of intent. Prior
trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales load. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES.
Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.
INVESTING IN CLASS B SHARES
Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and distributions paid on
Class B Shares will be considered to be held in a separate sub-account. Each
time any Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
INVESTING IN CLASS C SHARES
Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
MA; Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number);
Account Number; Trade Date and Order Number; Group Number or Dealer Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.
PURCHASING SHARES BY CHECK
Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS
Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.
-------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Neither the
Fund nor any of the funds in the Liberty Family of Funds imposes any additional
fees on exchanges. Participants in a retirement plan under the Federated
LifeTrackTM Program may exchange all or some of their Shares for Class A Shares
of other funds offered under the plan at net asset value.
CLASS B SHARES
Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds). Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.
CLASS C SHARES
Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other Class C Shares in the Liberty Family of Funds.)
Participants in a retirement plan under the Federated LifeTrackTM Program may
exchange some or all of their Shares for Class C Shares of other funds offered
under their plan at net asset value without a contingent deferred sales charge.
To the extent that a shareholder exchanges Shares for Class C Shares in other
funds in the Liberty Family of Funds, the time for which the exchanged-for
Shares are to be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the applicable holding period. For more
information, see "Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road--2nd Floor, Quincy, Massachusetts 02171.
Instructions for exchanges for retirement plans participating in the Federated
LifeTrackTM Program should be given to the plan administrator.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.
-------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrackTM Program will be governed by the
requirements of the respective plans.
REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION
Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA 02266-8600.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.
If you are requesting a redemption of any amount to be sent to an address other
than that on record with the Fund, or a redemption payable to a third party,
then all signatures appearing on the written request must be guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales load, it is not advisable for shareholders to continue to purchase Class A
Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased and sold
with a sales load and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>
CLASS C SHARES
Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption. No contingent deferred sales charge
will be charged for redemptions of Class C Shares from the Federated LifeTrackTM
Program.
CLASS A SHARES, CLASS B SHARES,
AND CLASS C SHARES
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount of the applicable contingent deferred
sales charge, redemptions are deemed to have occurred in the following order:
(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase
with respect to Class B Shares and one full year from the date of purchase with
respect to Class C Shares and applicable Class A Shares; (3) Shares held for
fewer than six years with respect to Class B Shares and one full year from the
date of purchase with respect to Class C Shares and applicable Class A Shares on
a first-in, first-out basis. A contingent deferred sales charge is not assessed
in connection with an exchange of Fund Shares for Shares of other funds in the
Liberty Family of Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged for Shares
are redeemed is calculated as if the shareholder had held the Shares from the
date on which he became a shareholder of the exchanged-from Shares. Moreover,
the contingent deferred sales charge will be eliminated with respect to certain
redemptions (see "Elimination of Contingent Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family
Funds or the Federated LifeTrackTM Program funds or redemptions from the
Federated LifeTrackTM Program.
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Adviser Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
--------------------------------------------------------------------------------
ACCOUNT AND SHARE
INFORMATION
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends and distributions are automatically reinvested in
additional Shares of the Fund on payment dates at the ex-dividend date net asset
value without a sales load, unless shareholders request cash payments on the new
account form or by contacting the transfer agent. All shareholders on the record
date are entitled to the dividend. If Shares are redeemed or exchanged prior to
the record date or purchased after the record date, those Shares are not
entitled to that month's dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
--------------------------------------------------------------------------------
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Directors. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES
The Adviser receives an annual investment advisory fee equal to .60 of 1% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The Adviser
has also undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 institutions nationwide. More than
100,000 investment professionals have selected Federated funds for their
clients.
Christopher H. Wiles has been the Fund's portfolio manager since August of 1991.
Mr. Wiles joined Federated Investors in 1990 and has been a Vice President of
the Adviser since 1992. Mr. Wiles served as Assistant Vice President of the
Fund's investment adviser from 1990 until 1992. Mr. Wiles was a portfolio
manager at Mellon Bank from 1986 until 1990. Mr. Wiles is a Chartered Financial
Analyst and received his M.B.A. in Finance from Cleveland State University.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase (except for participants in the Federated LifeTrackTM
Program). These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES PLANS
Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers. With respect to Class B Shares, because distribution
fees to be paid by the Fund to the distributor may not exceed an annual rate of
.75% of each class of Shares' average daily net assets, it will take the
distributor a number of years to recoup the expenses it has incurred for its
distribution and distribution-related services pursuant to the Plan.
The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class A Shares, Class B Shares, and Class C Shares to obtain
certain personal services for shareholders and for the maintenance of
shareholder accounts ("Shareholder Services"). The Fund has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a subsidiary
of Federated Investors, under which Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under the Federated
LifeTrackTM Program or by certain qualified plans as approved by Federated
Securities Corp. (Such payments are subject to a reclaim from the financial
institution should the assets leave the program within 12 months after
purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C Shares,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
-------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.
--------------------------------------------------------------------------------
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA PERSONAL
PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
--------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each class
of Shares including Fortress Shares described under "Other Classes of Shares."
Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, which, if
excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares and Fortress Shares. Because Fortress Shares and Class A
Shares may be subject to lower Rule 12b-1 fees, the yield for Fortress Shares
and Class A Shares, for the same period, may exceed that of Class B Shares and
Class C Shares.
Because Class A Shares are subject to a higher maximum sales load, the total
return for Class B Shares, Class C Shares, and Fortress Shares, for the same
period, may exceed that of Class A Shares. Depending on the dollar amount
invested, and the time period for which any particular class of Shares is held,
the total return for any particular class may exceed that of another.
From time to time, advertisements for Class A Shares, Class B Shares, Class C
Shares and Fortress Shares of the Fund may refer to ratings, rankings, and other
information in certain financial publications and/or compare the performance of
Class A Shares, Class B Shares, Class C Shares and Fortress Shares to certain
indices.
--------------------------------------------------------------------------------
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Fortress Shares. Fortress
Shares are sold primarily to customers of financial institutions subject to a
front-end sales load, a contingent deferred sales charge and a minimum initial
investment of $1,500, unless the investment is in a retirement account in which
the minimum investment is $50.
Shares and Fortress Shares are subject to certain of the same expenses. Expense
differences, however, between Shares and Fortress Shares may affect the
performance of each class.
To obtain more information and a prospectus for Fortress Shares, investors may
call 1-800-235-4669 or contact their financial institution.
--------------------------------------------------------------------------------
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB--Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B--Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC--Debt rated "CCC" has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC--The rating "CC" typically is applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" debt rating.
C--The rating "C" typically is applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI--The rating "CI" is reserved for income bonds on which no interest is being
paid.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated BA are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment or interest or principal.
DDD, DD, AND D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
LIBERTY EQUITY
INCOME FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED PROSPECTUS
An Open-End, Diversified
Management Investment Company
May 31, 1995
FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
530461102
530461409
530461201
G00492-01 (5/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (incorporated by reference to
Registrant's Annual Report dated March 31, 1995.)
(b) Exhibits:
(1) Copy of Articles of Incorporation of the Registrant,
as amended; (2)
(2) (i) Copy of By-Laws of the Registrant as Restated
and Amended; (3)
(ii) Copy of Amendment to By-Laws effective
August 28, 1987; (4)
(iii) Copy of Amendment to By-Laws effective
November 19, 1987; (4)
(3) Not applicable;
(4) Copies of Specimen Certificates for Shares of Capital
Stock for Class A Shares, Class B Shares, Class C
Shares, and Fortress Shares of the Registrant; (9)
(5) Copy of Investment Advisory Contract of the
Registrant; (5)
(6) (i) Copy of Distributor's Contract through
and including Exhibit C; (8)
(ii) Copy of Exhibit D to the Distributor's
Contract; +
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the
Registrant;+
(9) (i) Copy of Agreement for Fund
Accounting, Shareholder Recordkeeping, and
Custody Services Procurement of the
Registrant;+
(ii) Copy of Shareholder Services Plan of the
Registrant; (9)
(iii) Copy of Administrative Services Agreement of
the Registrant; (9)
(iv) Copy of Shareholder Services Agreement of the
Registrant; (9)
(10) Not applicable;
(11) Conformed copy of Consent of Independent
Auditors;+
(12) Not applicable;
(13) Copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) (i) Copy of Dealer Agreement; (3)
(ii) Copy of Rule 12b-1 Plan of the Registrant,
through and including Exhibit B; (8)
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 on Form N-1A filed December 15, 1986 (File Nos. 33-6901
and 811-4743).
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed May 18, 1988 (File Nos. 33-6901 and
811-4743).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901 and
811-4743).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed July 28, 1989 (File Nos. 33-6901 and
811-4743).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed May 25, 1994 (File Nos. 33-6901 and
811-4743).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed July 29, 1994 (File Nos. 33-6901
and 811-4743).
(iii) Conformed Copy of Exhibit C to the Rule 12b-1
Plan; +
(16) Schedule for Computation of Performance Data;
(4)
(17) Conformed copy of Power of Attorney; (9)
(18) Not applicable.
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 5, 1995
Shares of capital stock
($0.001 per Share par value)
Class A Shares 10,069
Class B Shares 765
Class C Shares 2156
Fortress Shares 2406
Item 27. Indemnification: (5.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Fund Information - Management
of the Fund" in Part A. The affiliations with the Registrant of
four of the Trustees and one of the Officers of the investment
adviser are included in Part A of this Registration Statement
under "Management of the Fund - Officers and Directors." The
remaining Trustee of the investment adviser, his position with
the investment adviser, and, in parentheses, his principal
occupation is: Mark D. Olson, Partner, Halbrook & Bayard, 107
West Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are: William D.
Dawson, III, J. Thomas Madden, and Mark L. Mallon, Executive Vice
Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, and J. Alan Minteer, Senior Vice Presidents;
J. Scott Albrecht, Randall A. Bauer, David A. Briggs, Jonathan C.
Conley, Deborah A. Cunningham, Michael P. Donnelly, Mark E.
Durbiano, Kathleen M. Foody-Malus, Thomas M. Franks, Edward C.
Gonzales, Jeff A. Kozemchak, Marian R. Marinack; Susan M. Nason,
Mary Jo Ochson, Robert J. Ostrowski, Frederick L. Plautz, Jr.,
Charles A. Ritter, James D. Roberge, Christopher H. Wiles and
John W. McGonigle, Vice Presidents; Joseph Balestrino, Linda Anne
Duessel, James Grefenstette, Susan R. Hill, Timothy Keefe, Paige
Wilhelm, Thomas F. Woodhouse, Assistant Vice Presidents; Edward
C. Gonzales, Treasurer; and John W. McGonigle, Secretary. The
business address of each of the Officers of the Federated
Research Division of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals
are also officers of a majority of the investment advisers to the
Funds listed in Part B of this Registration Statement.
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed July 19, 1988 (File Nos. 33-6901 and
811-4743).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed July 29, 1994 (File Nos. 33-6901
and 811-4743).
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series II;
DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.;
Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; The Medalist
Funds; Money Market Obligations Trust; Money Market Trust;
The Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust;
SouthTrust Vulcan Funds; Star Funds; The Starburst Funds;
The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Tower Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; Vision Fiduciary
Funds, Inc.; Vision Group of Funds, Inc.; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President and
Federated Investors Tower President, and Treasurer, Treasuer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company P.O. Box 8604
("Transfer Agent, Dividend Boston, MA 02266-8604
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8604
Company Boston, MA 02266-8604
("Custodian")
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, LIBERTY EQUITY INCOME
FUND, INC., certifies that it meets all of the requirements for
effectiveness of this Amendment to its Registration Statement pursuant
to Rule 485 (b) under the Securities Act of 1933 and has duly caused
this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 24th day of May, 1995.
LIBERTY EQUITY INCOME FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 24, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact May 24,1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
J. Christopher Donahue* Vice President and Director
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr. Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under Form N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
May 12, 1995, in Post Effective Amendment Number 20 to the Registration
Statement (Form N-1A No. 33-6901) and the related Prospectus (Class A
Shares, Class B Shares, Class C Shares and Fortress Shares) of Liberty
Equity Income Fund, Inc., dated May 31, 1995.
By: ERNST & YOUNG LLP
Ernst & Young LLP
May 23, 1995
Exhibit 17 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of LIBERTY EQUITY INCOME
FUND, INC. and the Assistant General Counsel of Federated Investors, and
each of them, their true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for them and in their
names, place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of
1934 and the Investment Company Act of 1940, by means of the Securities
and Exchange Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and
Trustee April 28, 1995
John F. Donahue (Chief Executive Officer)
__/s/ Richard B. Fisher_______ President
April 28, 1995
/s/ E. C. Gonzales Vice
President and Treasurer April 28, 1995
Edward C. Gonzales (Principal Financial and
Accounting Officer)
/s/ John T. Conroy, Jr. Director
April 28, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Director
April 28, 1995
William J. Copeland
/s/ James E. Dowd Director
April 28, 1995
James E. Dowd
/s/ Lawrence D. Ellis M.D. Director
April 28, 1995
Lawrence D. Ellis M.D.
/s/ Edward L. Flaherty, Jr. Director
April 28, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director April 28, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director April 28, 1995
Gregor F. Meyer
/s/ John E. Murray Director April 28, 1995
John E. Murray
/s/ Wesley W. Posvar Director April
28, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director April
28, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 28th day of April, 1995.
/s/ Marie L. Hamm
Notary Public
-1-
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit D
to the
Distributor's Contract
Liberty Equity Income Fund, Inc.
Class B Shares
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 1st day of March, 1993, between
Liberty Equity Income Fund, Inc. and Federated Securities Corp. with
respect to Classes of the Funds set forth above.
1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed
Classes ("Shares"). Pursuant to this appointment, FSC is authorized to
select a group of brokers ("Brokers") to sell Shares at the current
offering price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render administrative support
services to the Corporation and its shareholders. In addition, FSC is
authorized to select a group of administrators ("Administrators") to
render administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but are not
limited to, the following functions: 1) account openings: the Broker
or Administrator communicates account openings via computer terminals
located on the Broker's or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Corporation share purchases and
redemptions, confirms and reconciles all transactions, reviews the
activity in the Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Corporation's
accounts; 7) prospectus and shareholder reports: Broker or
Administrator maintains and distributes current copies of prospectuses
and shareholder reports; 8) advertisements: the Broker or Administrator
continuously advertises the availability of its services and products;
9) customer lists: the Broker or Administrator continuously provides
names of potential customers; 10) design services: the Broker or
Administrator continuously designs material to send to customers and
develops methods of making such materials accessible to customers; and
11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Corporation will pay
FSC for services pursuant to this Agreement, a monthly fee computed at
the annual rate of .25 of 1.00% of the average aggregate net asset value
of the Class B Shares held during the month. For the month in which
this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of
days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the
Corporation, voluntarily declare to be effective.
5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1
herein. FSC, in its sole discretion, may pay Brokers and Administrators
a periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time by
FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Brokers and Administrators and the purpose for
such payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Equity
Income Fund, Inc. and Federated Securities Corp., Liberty Equity Income
Fund, Inc. executes and delivers this Exhibit on behalf of the Funds,
and with respect to the separate Classes of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of September, 1994.
ATTEST: LIBERTY EQUITY INCOME FUND, INC.
/s/John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ Elliott Cohan /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT C
to the
12b-1 Plan
LIBERTY EQUITY INCOME FUND, INC.
Class B Shares
This Plan is adopted by LIBERTY EQUITY INCOME FUND, INC. with
respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .25 of 1%
of the average aggregate net asset value of the Class B Shares of the
Corporation held during the month.
Witness the due execution hereof this 1st day of September, 1994.
LIBERTY EQUITY INCOME FUND, INC.
By: /s/ Richard B. Fisher
President
Liberty Equity Income Fund, Inc. Page 1 5/24/95 ver. 1294v1
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Corporation"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of
the Corporation, and FEDERATED SERVICES COMPANY, a Delaware business Trust,
having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Corporation may desire to retain the Company to provide
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company is willing to furnish such services; and
WHEREAS, the Corporation may desire to appoint the Company as its transfer
agent, dividend disbursing agent if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Corporation may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved list
of qualified banks if so indicated on Exhibit 1, and the Company desires to
accept such appointment; and
WHEREAS, from time to time the Corporation may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Corporation Company or
another agent (the "Agent"); and
WHEREAS, the words Corporation and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Corporation hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Corporation's Board of
Corporationees or Directors ("Board"), the Company will assist the Corporation
with regard to fund accounting for the Corporation, and/or the Funds, and/or
the Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to
exercise reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received from
such agents and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net asset value
per share of such Fund or Class when the calculations are based upon
such prices. All of the above sources of prices used as described are
deemed by the Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Corporation, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder
in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Corporation
are the property of the Corporation and further agrees to surrender
promptly to the Corporation such records upon the Corporation's
request;
G. At the request of the Corporation, prepare various reports or other
financial documents required by federal, state and other applicable
laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Corporation.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the fees
agreed upon from time to time between the parties hereto. Such fees do
not include out-of-pocket disbursements of the Company for which the
Funds shall reimburse the Company upon receipt of a separate invoice.
Out-of-pocket disbursements shall include, but shall not be limited
to, the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees
of Corporationees or Directors of the Corporation; independent
auditors expenses; Federated Administrative Services and/or Federated
Administrative Services, Inc. legal and audit department expenses
billed to Federated Services Company for work performed related to the
Corporation, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly payable
by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the
full month period. Upon any termination of this Agreement before the
end of any month, the fee for such period shall be prorated according
to the proportion which such period bears to the full month period.
For purposes of determining fees payable to the Company, the value of
the Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing services under this Section One. Such person or persons may
be third-party service providers, or they may be officers and
employees who are employed by both the Company and the Funds. The
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Corporation, the
Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Corporation, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Corporation, or the Fund, and the Company are
satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Corporation as to any
Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be
paid out. The Company shall reconcile the amounts so requested
and the amounts actually received with the Custodian on a daily
basis. If a Shareholder is entitled to receive additional Shares
by virtue of any such distribution or dividend, appropriate
credits shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where requested;
and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Corporation, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall notify
the Funds on a daily basis of the total amount of redemption
requests processed and monies paid to the Company by the
Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a
regular basis or upon reasonable request with the total number
of Shares which are authorized and issued and outstanding, but
shall have no obligation when recording the issuance of Shares,
except as otherwise set forth herein, to monitor the issuance of
such Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Corporation or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to
retain in the Company's files, records and documents created and
maintained by the Company pursuant to this Agreement, which are
no longer needed by the Company in performance of its services
or for its protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for six
years from the year of creation, during the first two of which
such documents will be in readily accessible form. At the end of
the six year period, such records and documents will either be
turned over to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts,
mailing Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares
and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in
each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Corporation.
A. Compliance
The Corporation or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Corporation shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such supply
upon request of the Company. Such blank Share certificates shall be
properly signed, manually or by facsimile, if authorized by the
Corporation and shall bear the seal of the Corporation or facsimile
thereof; and notwithstanding the death, resignation or removal of any
officer of the Corporation authorized to sign certificates, the
Company may continue to countersign certificates which bear the manual
or facsimile signature of such officer until otherwise directed by the
Corporation.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Corporation and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed upon
between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Corporation and the Company. Pursuant to
information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The
Company will charge the Fund the same fees for each such Class or sub-
component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Corporation
and/or Fund agree to reimburse the Company for out-of-pocket expenses
or advances incurred by the Company for the items agreed upon between
the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Corporation and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section Two may
be assigned by either party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. The Company may without further consent on the part of the Corporation
subcontract for the performance hereof with (A) State Street Bank and
its subsidiary, Boston Financial Data Services, Inc., a Massachusetts
Corporation ("BFDS"), which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934,
as amended, or any succeeding statute ("Section 17A(c)(1)"), or (B) a
BFDS subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other provider
of services duly registered as a transfer agent under Section
17A(c)(1) as Company shall select; provided, however, that the Company
shall be as fully responsible to the Corporation for the acts and
omissions of any subcontractor as it is for its own acts and
omissions; or
C. The Company shall upon instruction from the Corporation subcontract for
the performance hereof with an Agent selected by the Corporation,
other than BFDS or a provider of services selected by Company, as
described in (2) above; provided, however, that the Company shall in
no way be responsible to the Corporation for the acts and omissions of
the Agent.
SECTION THREE: Custody Services Procurement.
Article 9. Appointment.
The Corporation hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Corporation as
Custodian of the Corporation's assets substantially on the terms set
forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the benefit
of the Corporation, with the Corporation as a party to each such
agreement. The Company shall not be a party to any agreement with any
such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services provided by
the Custodians; and
F. periodically provide to the Corporation (i) written reports on the
activities and services of the Custodians; (ii) the nature and amount
of disbursement made on account of the Corporation with respect to
each custodial agreement; and (iii) such other information as the
Board shall reasonably request to enable it to fulfill its duties and
obligations under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, the Corporation and/or the Fund agree to pay the Company an
annual fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Corporation
and/or Fund agree to reimburse the Company for out-of-pocket expenses
or advances incurred by the Company for the items agreed upon between
the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Corporation and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this Agreement,
the Corporation shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Corporation and all
amendments thereto;
(2) A copy of the resolution of the Board of the Corporation
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Corporation or the Funds in the forms approved by the Board of
the Corporation with a certificate of the Secretary of the
Corporation as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Corporation authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Corporation;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Corporation that:
(1) It is a business Trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this
Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Corporation
The Corporation represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Corporation is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each
Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the
Corporation) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or state
laws or regulations, and is in good faith and without negligence.
B. Indemnification by Corporation
The Company shall not be responsible for and the Corporation or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Corporation or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase,
redemption or transfer of Shares and Shareholder account
information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Corporation of Fund for
use in the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Corporation.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Corporation or
the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered
in such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties of failure to
meet the standard of care set forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the Corporation or
Fund for instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be performed
by the Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the
Corporation or the appropriate Fund for any action reasonably taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its agents and
subcontractors shall be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of the Corporation or the
Fund, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the Corporation exercise its
rights to terminate, all out-of-pocket expenses associated with the movement
of records and materials will be borne by the Corporation or the appropriate
Fund. Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of
Article 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Corporation may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. Any such interpretive
or additional provisions shall be in a writing signed by both parties and
shall be annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or any
provision of the Charter. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Corporation at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Corporation or the Company may hereafter specify, shall
be deemed to have been properly delivered or given hereunder to the respective
address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
Article 22. Limitations of Liability of Corporationees and Shareholders of
the Corporation.
The execution and delivery of this Agreement have been authorized by the
Corporationees of the Corporation and signed by an authorized officer of the
Corporation, acting as such, and neither such authorization by such
Corporationees nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any liability on
any of them personally, and the obligations of this Agreement are not binding
upon any of the Corporationees or Shareholders of the Corporation, but bind
only the appropriate property of the Fund, or Class, as provided in the
Declaration of Corporation.
Article 23. Limitations of Liability of Corporationees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by the
Corporationees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Corporationees
nor such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Corporationees or Shareholders of the Company, but bind only the property
of the Company as provided in the Declaration of Corporation.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to the Corporation or the Funds by either of the parties hereto
except by the specific written consent of the other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 26. Successor Agent.
If a successor agent for the Corporation shall be appointed by the
Corporation, the Company shall upon termination of this Agreement deliver to
such successor agent at the office of the Company all properties of the
Corporation held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or Corporation company, which is a "bank" as
defined in the 1940 Act, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or Corporation company shall be the successor of the
Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 28 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: INVESTMENT COMPANIES
(listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
LIBERTY EQUITY INCOME FUND, INC.
Class A Shares
Class B Shares
Class C Shares
Fortress Shares
EXHIBIT 8 UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. 9
2.10 Payments for Repurchases or Redemptions of Shares of a Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public Accountants/Auditors 16
6. Reports to Trust by Independent Public Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and FEDERATED SERVICES COMPANY, a Delaware business trust
company, having its principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of the Funds of the Trust. Except as otherwise expressly provided
herein, the securities and other assets of each of the Funds shall be
segregated from the assets of each of the other Funds and from all other
persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income,
payments of principal or capital distributions received by them with
respect to all securities owned by the Funds from time to time, and the
cash consideration received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from time
to time. The Custodian shall not be responsible for any property of the
Funds held or received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or
liability to the Trust or any of the Funds on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian
has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic
physical inspections of certificates representing stocks, bonds and
other securities held by it under this Contract in such manner as
the Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. With respect to
securities held by any agent appointed pursuant to Section 2.11
hereof, and with respect to securities held by any sub-custodian
appointed pursuant to Section 1 hereof, the Custodian may rely upon
certificates from such agent as to the holdings of such agent and
from such sub-custodian as to the holdings of such sub-custodian,
it being understood that such reliance in no way relieves the
Custodian of its responsibilities under this Contract. The
Custodian will promptly report to the Trust the results of such
inspections, indicating any shortages or discrepancies uncovered
thereby, and take appropriate action to remedy any such shortages
or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own failure
to act in accordance with the standard of reasonable care or
any higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by
the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust, transferred
through a Securities System in accordance with Section 2.12
hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing already
made, further securities may be released for the purpose;
(12)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
in satisfaction of requests by holders of Shares for repurchase
or redemption; and
(15)For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian
(other than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Trust has authorized in writing
the appointment of a nominee to be used in common with other
registered investment companies affiliated with the Fund, or in the
name or nominee name of any agent appointed pursuant to Section
2.11 or in the name or nominee name of any sub-custodian appointed
pursuant to Section 1. All securities accepted by the Custodian on
behalf of a Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of each Fund, other than cash maintained in a joint
repurchase account with other affiliated funds pursuant to Section
2.14 of this Contract or by a particular Fund in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940 Act").
Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian
or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the
Fund and shall be withdrawable by the Custodian only in that
capacity. If requested by the Trust, the Custodian shall furnish
the Trust, not later than twenty (20) days after the last business
day of each month, an internal reconciliation of the closing
balance as of that day in all accounts described in this section to
the balance shown on the daily cash report for that day rendered to
the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements
with the Transfer Agent of each Fund, as will enable the Custodian
to receive the cash consideration due to each Fund and will deposit
into each Fund's account such payments as are received from the
Transfer Agent. The Custodian will provide timely notification to
the Trust and the Transfer Agent of any receipt by it of payments
for Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time
to time by the Trust and the Custodian in the amount of checks,
clearing house funds, and other non-federal funds received in
payment for Shares of the Funds which are deposited into the Funds'
accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to each
Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. The collection
of income due the Funds on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of
the Trust. The Custodian will have no duty or responsibility
in connection therewith, other than to provide the Trust with
such information or data as may be necessary to assist the
Trust in arranging for the timely delivery to the Custodian of
the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income
due on securities is not collected in due course and will
provide the Trust with monthly reports of the status of past
due income unless the parties otherwise agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options
on futures contracts for the account of a Fund but only (a)
against the delivery of such securities, or evidence of title
to futures contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United States or
abroad which is qualified under the 1940 Act to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer, (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.12 hereof or (c) in
the case of repurchase agreements entered into between the
Trust and any other party, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written instructions from the Trust to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through
bank drafts, automated clearinghouse facilities, or by other means.
In connection with the redemption or repurchase of Shares of the
Funds, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders.
2.11Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the 1940 Act and
any applicable state law or regulation, to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as
the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in
accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall
identify by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the
account of each Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities
sold for the account of a Fund upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the
account of a Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Trust at its
request. Upon request, the Custodian shall furnish the Trust
confirmation of each transfer to or from the account of a Fund
in the form of a written advice or notice and shall furnish to
the Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
a Fund.
(4) The Custodian shall provide the Trust with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage
to a Fund resulting from use of the Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or
from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities
System; at the election of the Trust, it shall be entitled to
be subrogated to the rights of the Custodian with respect to
any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such loss
or damage if and to the extent that a Fund has not been made
whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence
in making use of any Securities System.
2.13Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or
the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions for a
Fund, (ii) for purpose of segregating cash or government securities
in connection with options purchased, sold or written for a Fund or
commodity futures contracts or options thereon purchased or sold
for a Fund, (iii) for the purpose of compliance by the Trust or a
Fund with the procedures required by any release or releases of the
SEC relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board or of the Executive Committee signed by an officer of
the Trust and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account
and declaring such purposes to be proper corporate purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any
assets of a Fund and any affiliated funds which are subject to
joint repurchase transactions in an account established solely for
such transactions for the Fund and its affiliated funds. For
purposes of this Section 2.14, "affiliated funds" shall include all
investment companies and their portfolios for which subsidiaries or
affiliates of Federated Investors serve as investment advisers,
distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of segregation set
forth in Section 2.1 shall be deemed to be waived with respect to
such assets.
2.15Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it
and in connection with transfers of securities.
2.16Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than
in the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Fund and the maturity of futures contracts purchased or sold
by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Trust
all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If the
Trust desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Trust shall
notify the Custodian in writing at least three business days prior
to the date on which the Custodian is to take such action.
However, the Custodian shall nevertheless exercise its best efforts
to take such action in the event that notification is received
three business days or less prior to the date on which action is
required.
2.18Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type
of transaction involved. Oral instructions will be deemed to be
Proper Instructions if (a) the Custodian reasonably believes them
to have been given by a person previously authorized in Proper
Instructions to give such instructions with respect to the
transaction involved, and (b) the Trust promptly causes such oral
instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of the Trust accompanied by a detailed
description of procedures approved by the Board, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board
and the Custodian are satisfied that such procedures afford
adequate safeguards for a Fund's assets.
2.19Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust in such form that it may be
allocated to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
each Fund except as otherwise directed by the Trust.
2.20Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or
other instrument or paper reasonably believed by it to be genuine
and to have been properly executed on behalf of a Fund. The
Custodian may receive and accept a certified copy of a vote of the
Board of the Trust as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination of or any action by the Board pursuant to the
Declaration of Trust/Articles of Incorporation as described in such
vote, and such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Trust of any
receipt of cash, income or payments to the Trust and the release of
cash or payment by the Trust.
3. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in writing
to do so by the Trust, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of a Fund as described in the
Fund's currently effective prospectus and Statement of Additional
Information ("Prospectus") and shall advise the Trust and the Transfer
Agent daily of the total amounts of such net income and, if instructed
in writing by an officer of the Trust to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share
and the daily income of a Fund shall be made at the time or times
described from time to time in the Fund's currently effective
Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of
termination of this Contract, the Custodian will deliver all such
records to the Trust, to a successor Custodian, or to such other person
as the Trust may direct. The Custodian shall supply daily to the Trust
a tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions
from each Fund's independent public accountants/auditors with respect to
its activities hereunder in connection with the preparation of the
Fund's registration statement, periodic reports, or any other reports to
the SEC and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Trust, to provide reasonable assurance
that any material inadequacies would be disclosed by such examination
and, if there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the
assets of the Fund involved in the issue at hand and be without
liability for any action taken or thing done by it in carrying out the
terms and provisions of this Contract in accordance with the above
standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may
be asked to indemnify or save the Custodian harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian
will use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have
the option to defend the Custodian against any claim which may be the
subject of this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust shall
take over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the Trust's prior
written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money
or incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from it
or its nominee's own failure to act in accordance with the standard of
reasonable care or any higher standard of care which would be imposed
upon the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract. To
secure any authorized charges and any advances of cash or securities
made by the Custodian to or for the benefit of a Fund for any purpose
which results in the Fund incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any
business day, the Trust hereby grants to the Custodian a security
interest in and pledges to the Custodian securities held for the Fund by
the Custodian, in an amount not to exceed 10 percent of the Fund's gross
assets, the specific securities to be designated in writing from time to
time by the Trust or the Fund's investment adviser. Should the Trust
fail to make such designation, or should it instruct the Custodian to
make advances exceeding the percentage amount set forth above and should
the Custodian do so, the Trust hereby agrees that the Custodian shall
have a security interest in all securities or other property purchased
for a Fund with the advances by the Custodian, which securities or
property shall be deemed to be pledged to the Custodian, and the written
instructions of the Trust instructing their purchase shall be considered
the requisite description and designation of the property so pledged for
purposes of the requirements of the Uniform Commercial Code. Should the
Trust fail to cause a Fund to repay promptly any authorized charges or
advances of cash or securities, subject to the provision of the second
paragraph of this Section 8 regarding indemnification, the Custodian
shall be entitled to use available cash and to dispose of pledged
securities and property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery
or mailing; provided, however that the Custodian shall not act under
Section 2.12 hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of the Trust
has approved the initial use of a particular Securities System as
required in each case by Rule 17f-4 under the 1940 Act; provided
further, however, that the Trust shall not amend or terminate this
Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust/Articles of
Incorporation, and further provided, that the Trust may at any time by
action of its Board (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the appropriate banking
regulatory agency or upon the happening of a like event at the direction
of an appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form
for transfer, all securities then held by it hereunder for each Fund and
shall transfer to separate accounts of the successor custodian all of
each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, (delete
"doing business ... Massachusetts" unless SSBT is the Custodian) doing
business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds
and other properties held by the Custodian and all instruments held by
the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of
such successor custodian all of each Fund's securities held in any
Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing
to failure of the Trust to procure the certified copy of the vote
referred to or of the Board to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract relating
to the duties and obligations of the Custodian shall remain in full
force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to
be an amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Trust or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust of those Trusts
which are business trusts and agrees that the obligations and
liabilities assumed by the Trust and any Fund pursuant to this Contract,
including, without limitation, any obligation or liability to indemnify
the Custodian pursuant to Section 8 hereof, shall be limited in any case
to the relevant Fund and its assets and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the
relevant Fund, from any other Fund or its shareholders or from the
Trustees, Officers, employees or agents of the Trust, or any of them.
In addition, in connection with the discharge and satisfaction of any
claim made by the Custodian against the Trust, for whatever reasons,
involving more than one Fund, the Trust shall have the exclusive right
to determine the appropriate allocations of liability for any such claim
between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti, Jr.__________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
Liberty Equity Income Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Fortress Shares
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Liberty Equity Income Fund, Inc.
Class A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-31-1995
<PERIOD-END> Mar-31-1995
<INVESTMENTS-AT-COST> 172,528,649
<INVESTMENTS-AT-VALUE> 182,178,975
<RECEIVABLES> 3,253,412
<ASSETS-OTHER> 4,069
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185,436,456
<PAYABLE-FOR-SECURITIES> 4,555,595
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,050,827
<TOTAL-LIABILITIES> 5,606,422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176,685,177
<SHARES-COMMON-STOCK> 9,446,625
<SHARES-COMMON-PRIOR> 7,653,427
<ACCUMULATED-NII-CURRENT> 455,577
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,961,046)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,650,326
<NET-ASSETS> 108,682,601
<DIVIDEND-INCOME> 6,278,757
<INTEREST-INCOME> 1,749,957
<OTHER-INCOME> 0
<EXPENSES-NET> 1,903,556
<NET-INVESTMENT-INCOME> 6,125,158
<REALIZED-GAINS-CURRENT> (5,318,671)
<APPREC-INCREASE-CURRENT> 11,980,000
<NET-CHANGE-FROM-OPS> 12,786,487
<EQUALIZATION> 129,755
<DISTRIBUTIONS-OF-INCOME> 4,061,012
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,771,742
<NUMBER-OF-SHARES-REDEEMED> 2,214,569
<SHARES-REINVESTED> 236,025
<NET-CHANGE-IN-ASSETS> 49,523,053
<ACCUMULATED-NII-PRIOR> 483,527
<ACCUMULATED-GAINS-PRIOR> (1,642,375)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 960,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,474,460
<AVERAGE-NET-ASSETS> 159,976,374
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 0.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Liberty Equity Income Fund, Inc.
Class B, Class C, and Fortess Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Mar-31-1995
<PERIOD-END> Mar-31-1995
<INVESTMENTS-AT-COST> 172,528,649
<INVESTMENTS-AT-VALUE> 182,178,975
<RECEIVABLES> 3,253,412
<ASSETS-OTHER> 4,069
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185,436,456
<PAYABLE-FOR-SECURITIES> 4,555,595
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,050,827
<TOTAL-LIABILITIES> 5,606,422
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176,685,177
<SHARES-COMMON-STOCK> 6,184,081
<SHARES-COMMON-PRIOR> 4,127,706
<ACCUMULATED-NII-CURRENT> 455,577
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,961,046)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,650,326
<NET-ASSETS> 71,147,433
<DIVIDEND-INCOME> 6,278,757
<INTEREST-INCOME> 1,749,957
<OTHER-INCOME> 0
<EXPENSES-NET> 1,903,556
<NET-INVESTMENT-INCOME> 6,125,158
<REALIZED-GAINS-CURRENT> (5,318,671)
<APPREC-INCREASE-CURRENT> 11,980,000
<NET-CHANGE-FROM-OPS> 12,786,487
<EQUALIZATION> 129,755
<DISTRIBUTIONS-OF-INCOME> 2,221,849
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,237,848
<NUMBER-OF-SHARES-REDEEMED> 1,290,178
<SHARES-REINVESTED> 108,705
<NET-CHANGE-IN-ASSETS> 49,523,053
<ACCUMULATED-NII-PRIOR> 483,527
<ACCUMULATED-GAINS-PRIOR> (1,642,375)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 960,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,474,460
<AVERAGE-NET-ASSETS> 159,976,374
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 0.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
