[LOGO] FEDERATED
LIBERTY
UTILITY
FUND, INC.
7th Semi-Annual Report
August 31, 1994
Established 1988
President's Message
Dear Fellow Shareholder:
I am pleased to present the Semi-Annual Report for Liberty Utility Fund, Inc.
(the "Fund") for the six-month period ended August 31, 1994.
The report contains an interview with the Fund's portfolio manager, Christopher
Wiles, Vice President of Federated Advisers. Following the interview are a
complete listing of the Fund's Portfolio of Investments and Financial
Statements.
During the six-month reporting period, the Fund paid more than $63 million in
dividends to shareholders. However, due to the increase in interest rates that
affected all financial markets, the net asset value per share for the Fund's
Class A Shares declined from $12.24 to $11.33, a decline of 7.4%. The net asset
value of Class C Shares of the Fund declined from $12.23 to $11.31 per share, a
decline of 7.5%. On the last day of the six-month reporting period, the Fund's
net assets stood at $867 million.
During the calendar year 1993, the Fund's Class A Shares value rose from $11.57
to $12.64, a gain of 9.2%; Class C Shares value rose from $12.28 to $12.64, a
gain of 2.9%, during the period from April 30, 1993 (date of initial public
offering) to December 31, 1993.
The Fund's portfolio remained well-diversified: 59% of the Fund's assets were
invested in utility and other common stocks; 34% in convertible and adjustable
rate preferred stocks; 2% in convertible corporate bonds; and 4% in a repurchase
agreement. This diversification helped the Fund outperform the overall utility
market which declined 7.08% during the reporting period.
Liberty Utility Fund, Inc. offers a sensible way to invest for income and growth
over the long term. Utilities provide a vital service: no matter what state the
economy is in, people need utilities.
Thank you for choosing Liberty Utility Fund, Inc. as a convenient way to own
strong utility companies in the U.S. Your questions and comments are always
welcome.
Very sincerely yours,
Richard B. Fisher
President
October 15, 1994
Investment Review
Christopher H. Wiles, CFA
Vice President,
Federated Advisers
Q Investors have just experienced the worst period in almost two decades for
domestic utility stocks. Chris, can you briefly describe the status of the U.S.
utility industry and the factors driving its evolution?
A Electric utility stocks are down approximately 30% from their highs, and the
news surrounding them continues to be relatively negative. The reasons for this
decline are twofold. First, rising interest rates negatively impact utilities,
and second, the industry is undergoing a change in regulation that will foster
more competition. Transitional changes of this magnitude are never painless, but
what should evolve is a more efficient industry with clear winners and losers.
A How was the Fund's performance affected?
A Obviously, when an industry undergoes such a large decline, it's nearly
impossible for an investor in that industry to escape unscathed. However, the
total return of Liberty Utility Fund, Inc. was down only 4.85%* from 9/13/93 to
8/31/94 while the total return of Dow Jones Utility Index** was down 21.88%
over the same period.
Q How did the Fund manage to outperform the index?
A The reason for our significant outperformance is our continued focus on
diversification. We currently have only 25% of our assets in electric utility
common stocks (the worst performing utilities), 25% in telecommunications, 14%
in natural gas, international utilities comprise 18% and 27% are invested in
convertibles and non-utility holdings. Please take time to review the Fund's
holdings in 45 utility companies and 18 other income producing issues.
* Performance quoted represents past performance and does not guarantee
future results. Fund total return is based on net asset value, which does not
reflect a sales load or contingent deferred sales charge, if applicable.
** This index is unmanaged.
Q In preparation for ongoing changes in the market, have you revised your
strategy during the reporting period?
A Over the last year, we have lowered our overall electric exposure to 30%,
non-utilities to 27%. Our security selection process is focusing on companies
with both financial and management flexibility.
Q Given the current status of the market, why should people still invest in
utilities?
A The number one reason is the vital nature of utilities. This industry is not
disappearing. In order for us to have dependable service, utility companies
must be allowed to earn enough in profits to attract investment capital. Some
other reasons include:
. Consistent current income and value;
. Increased efficiency and healthier earnings;
. Sales growth through international investment; and
. Regulations that allow more mergers.
Out of more than 100 utilities, we will work to identify those companies that
will carry us into the new era. We are confident in our selections of
individual companies and pleased with our broad diversification.
Two Ways You May Seek to Invest for Success in
Liberty Utility Fund, Inc.
Initial Investment
A $7,000 investment reinvesting all dividends and capital gains grew to $14,237.
If you had invested $7,000 in the Class A Shares of Liberty Utility Fund, Inc.
on 5/27/88, reinvested your dividends and capital gains, and didn't redeem any
shares, your account would be worth $14,237 on 8/31/94. You would have earned a
12.01%* average annual total return for the 7-year investment lifespan quite
attractive for a utility stock fund, especially during a time when the economic
markets went through several cycles.
One key to investing wisely is to reinvest all distributions in Fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 9/30/94, the Class A Shares' average annual one-year, five-year, and
since inception (5/27/88) total returns were -10.37%, 8.96%, and 11.45%,
respectively. Class C Shares' average annual one-year and since inception
(4/27/93) total returns were -7.67% and 0.15%, respectively.
[SEE APPENDIX A]
* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 4.5% sales load applicable to an initial investment in Class A Shares. As
of October 1, 1994, the maximum sales load for Liberty Utility Fund,
Inc. -- Class A Shares is 5.50%.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Liberty Utility Fund, Inc.
One Step at a Time
$1,000 invested each year for 7 years (reinvesting all dividends and capital
gains) grew to $9,720.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Liberty
Utility Fund, Inc. on 5/27/88, reinvested your dividends and capital gains, and
didn't redeem any shares, you would have invested only $7,000, but your account
would have reached a total value of $9,720* by 8/31/94. You would have earned
an average annual total return of 9.98%.
A practical investment plan helps you pursue long-term performance from utility
securities. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. This investment plan works for you even if you invest
only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
[SEE APPENDIX B]
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at various
prices, investors can purchase more shares at lower prices. All accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Liberty Utility Fund, Inc. -- Hypothetical Investor Profile:
Investing for Quarterly Income
Ed and Jill Sanders are a fictional retired couple who invested in Liberty
Utility Fund, Inc. to provide them with quarterly income. On May 27, 1988, they
invested $50,000 -- part of Ed's lump sum retirement -- in Class A Shares of the
Fund. Since that time, their investment has generated quarterly income
averaging $1,125. This represents a 9.89% average annual total return.
This couple has paid a lifetime of utility bills. Now, through Liberty Utility
Fund, Inc., utilities are paying them!
[SEE APPENDIX C]
Liberty Utility Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
August 31, 1994
(unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--59.4%
- -------------------------------------------------------------------------------------------------
UTILITIES--53.1%
----------------------------------------------------------------------------------
250,000 American Telephone & Telegraph $ 13,687,500
----------------------------------------------------------------------------------
525,000 Baltimore Gas & Electric Co. 12,075,000
----------------------------------------------------------------------------------
700,000 BCE, Inc. 24,500,000
----------------------------------------------------------------------------------
625,000 British Telecommunication PLC, ADR 26,162,500
----------------------------------------------------------------------------------
500,000 Cincinnati Gas and Electric Co. 11,250,000
----------------------------------------------------------------------------------
450,000 CMS Energy Corp. 10,125,000
----------------------------------------------------------------------------------
139,100 Consolidated Natural Gas Co. 5,546,613
----------------------------------------------------------------------------------
650,000 DPL, Inc. 13,162,500
----------------------------------------------------------------------------------
500,000 DQE, Inc. 15,312,500
----------------------------------------------------------------------------------
300,000 Duke Power Co. 11,625,000
----------------------------------------------------------------------------------
300,000 Enron Corp. 9,150,000
----------------------------------------------------------------------------------
390,600 Entergy Corp. 9,716,175
----------------------------------------------------------------------------------
400,000 Florida Progress Corp. 11,600,000
----------------------------------------------------------------------------------
300,000 FPL Group, Inc. 9,412,500
----------------------------------------------------------------------------------
500,000 General Public Utilities 13,062,500
----------------------------------------------------------------------------------
475,000 GTE Corp. 15,081,250
----------------------------------------------------------------------------------
900,000 Hong Kong Telecommunications, ADR 19,575,000
----------------------------------------------------------------------------------
310,000 MCN Corp. 12,051,250
----------------------------------------------------------------------------------
448,200 NIPSCO Industries, Inc. 12,941,775
----------------------------------------------------------------------------------
500,000 NYNEX Corp. 19,312,500
----------------------------------------------------------------------------------
800,000 Pacific Enterprises 17,100,000
----------------------------------------------------------------------------------
1,000,000 Pacificorp 17,125,000
----------------------------------------------------------------------------------
396,100 Peco Energy Co. 10,793,725
----------------------------------------------------------------------------------
600,000 Pinnacle West Capital Corp. 11,100,000
----------------------------------------------------------------------------------
265,100 PSI Resources, Inc. 5,931,613
----------------------------------------------------------------------------------
750,000 Sonat, Inc. 22,875,000
----------------------------------------------------------------------------------
750,000 Southern Co. $ 14,156,250
----------------------------------------------------------------------------------
</TABLE>
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
----------------------------------------------------------------------------------
401,400 Southern New England Telecommunications 13,196,025
----------------------------------------------------------------------------------
396,500 Southwestern Bell Corp. 16,405,188
----------------------------------------------------------------------------------
350,000 Sprint Corp. 13,868,750
----------------------------------------------------------------------------------
420,000 UGI Corp. 8,137,500
----------------------------------------------------------------------------------
639,420 Utilicorp United, Inc. 18,383,325
----------------------------------------------------------------------------------
550,000 Western Resources, Inc. 15,812,500
---------------------------------------------------------------------------------- --------------
Total 460,234,439
---------------------------------------------------------------------------------- --------------
CONSUMER DURABLES--0.5%
----------------------------------------------------------------------------------
335,000 South West Property Trust, Inc., REIT 4,103,750
---------------------------------------------------------------------------------- --------------
CONSUMER SERVICES--2.1%
----------------------------------------------------------------------------------
275,000 CBL & Associates Properties, Inc., REIT 5,362,500
----------------------------------------------------------------------------------
500,000 Simon Property Group, Inc., REIT 13,187,500
---------------------------------------------------------------------------------- --------------
Total 18,550,000
---------------------------------------------------------------------------------- --------------
ENERGY--1.8%
----------------------------------------------------------------------------------
255,000 Texaco, Inc. 15,746,250
---------------------------------------------------------------------------------- --------------
HEALTHCARE--1.9%
----------------------------------------------------------------------------------
499,400 Meditrust, REIT 16,480,200
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $495,002,249) 515,114,639
---------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--34.0%
- -------------------------------------------------------------------------------------------------
ADJUSTABLE RATE PREFERRED STOCKS--6.5%
----------------------------------------------------------------------------------
170,000 Enserch Corp., ARPS, Series E 16,500,625
----------------------------------------------------------------------------------
180,000 Illinois Power Co., ARPS, Series B 8,527,500
----------------------------------------------------------------------------------
335,000 Niagara Mohawk Power Corp., ARPS, Series C 8,312,187
----------------------------------------------------------------------------------
100,000 Texas Utilities Electric Co., ARPS, Series A 8,925,000
----------------------------------------------------------------------------------
52,000 Texas Utilities Electric Co., ARPS, Series B 4,966,000
----------------------------------------------------------------------------------
255,050 Toledo Edison Co., ARPS, Series B 6,121,200
----------------------------------------------------------------------------------
66,508 USX Marathon Group, ARPS $ 3,292,146
---------------------------------------------------------------------------------- --------------
Total 56,644,658
---------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS--27.5%
----------------------------------------------------------------------------------
845,000 Citicorp, PERCS, Series 15, $1.22 16,477,500
----------------------------------------------------------------------------------
185,000 *Cointel/Telefonica de Argentina SA, PRIDES, $5.04 12,895,425
----------------------------------------------------------------------------------
200,000 *Freeport McMoRan, Inc., Conv. Pfd., $4.38 9,425,000
----------------------------------------------------------------------------------
527,000 James River Corp. of Virginia, DECS, Series P, $1.55 12,121,000
----------------------------------------------------------------------------------
230,000 Kaufman and Broad Homes, Inc., Conv. Pfd., Series B, $1.52 3,938,750
----------------------------------------------------------------------------------
350,000 Nacional Financiera, SNC/Telmex PRIDES, $6.79 23,318,750
----------------------------------------------------------------------------------
446,500 *Occidental Petroleum Corp., Conv. Pfd., $3.88 24,111,000
----------------------------------------------------------------------------------
425,000 *Philippine Long Distance, Conv. Pfd., Series II, $1.44 16,549,925
----------------------------------------------------------------------------------
213,500 Reynolds Metals Co., PRIDES, $3.31 11,368,875
----------------------------------------------------------------------------------
2,367,400 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 16,571,800
----------------------------------------------------------------------------------
425,000 Sears, Roebuck & Co., Conv. Pfd., Series A, $3.75 23,534,375
----------------------------------------------------------------------------------
300,000 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 12,450,000
----------------------------------------------------------------------------------
420,000 Tenneco, Inc., Conv. Pfd., Series A, $2.80 17,377,500
----------------------------------------------------------------------------------
250,000 Unisys Corp., Conv. Pfd., Series A, $3.75 9,375,000
----------------------------------------------------------------------------------
1,902,000 *Westinghouse Electric Corp., PEPS, Series C, $1.30 28,765,848
---------------------------------------------------------------------------------- --------------
Total 238,280,748
---------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $267,330,053) 294,925,406
---------------------------------------------------------------------------------- --------------
CONVERTIBLE CORPORATE BONDS--2.2%
- -------------------------------------------------------------------------------------------------
UTILITIES--2.2%
----------------------------------------------------------------------------------
$ 10,000,000 National Power PLC, Sub., 6.25%, 9/23/2008 (identified cost, $16,524,987) 19,109,746
---------------------------------------------------------------------------------- --------------
</TABLE>
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
**REPURCHASE AGREEMENT--4.0%
- -------------------------------------------------------------------------------------------------
$ 34,310,000 J.P. Morgan Securities, Inc., 4.85%, dated 8/31/94, due 9/1/94
(at amortized cost) $ 34,310,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $813,167,289) $ 863,459,791+
---------------------------------------------------------------------------------- --------------
</TABLE>
*Restricted securities--Investment in Securities Act of 1933. At the end of the
period, these securities amounted to 10.6% of net assets.
**The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement is through participation in a joint account with other
Federated Funds.
+The cost of investments for federal tax purposes amounts to $813,172,020 at
August 31, 1994. The net unrealized appreciation on a federal tax basis amounts
to $50,287,771, which is comprised of $75,057,490 appreciation and $24,769,719
depreciation at August 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($867,086,723) at August 31, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
ARPS--Adjustable Rate Preferred Stock
DECS--Dividend Enhanced Convertible Stock
PEPS--Participating Equity Preferred Stock
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
August 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost, $813,167,289 and tax cost, $813,172,020) $ 863,459,791
- ---------------------------------------------------------------------------------------------------
Cash 35,375
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 6,782,667
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 2,161,125
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock sold 1,007,755
- --------------------------------------------------------------------------------------------------- -------------
Total assets 873,446,713
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $ 3,501,930
- --------------------------------------------------------------------------------------
Payable for capital stock redeemed 2,403,855
- --------------------------------------------------------------------------------------
Tax withholding liability 176,653
- --------------------------------------------------------------------------------------
Accrued expenses 277,552
- -------------------------------------------------------------------------------------- -----------
Total liabilities 6,359,990
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 76,566,640 shares of capital stock outstanding $ 867,086,723
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 842,377,454
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 50,292,502
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments (39,855,662)
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 14,272,429
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 867,086,723
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares (net assets of $803,332,223 / 70,931,831 shares of capital stock outstanding) $11.33
- --------------------------------------------------------------------------------------------------- -------------
Class C Shares (net assets of $63,754,500 / 5,634,809 shares of capital stock outstanding) $11.31
- --------------------------------------------------------------------------------------------------- -------------
OFFERING PRICE PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $11.33) $11.86*
- --------------------------------------------------------------------------------------------------- -------------
Class C Shares $11.31
- --------------------------------------------------------------------------------------------------- -------------
REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
Class A Shares $11.33
- --------------------------------------------------------------------------------------------------- -------------
Class C Shares (99/100 of $11.31) $11.20*
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended August 31, 1994
(unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Dividend income (net of foreign taxes of $287,308) $ 26,791,578
- --------------------------------------------------------------------------------------------------
Interest income 1,462,834
- -------------------------------------------------------------------------------------------------- --------------
Total investment income 28,254,412
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee $ 3,324,204
- ------------------------------------------------------------------------------------
Directors' fees 6,500
- ------------------------------------------------------------------------------------
Administrative personnel and services 325,931
- ------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 49,081
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 413,000
- ------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 1,008,713
- ------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 79,317
- ------------------------------------------------------------------------------------
Distribution services fee 237,953
- ------------------------------------------------------------------------------------
Capital stock registration fees 84,300
- ------------------------------------------------------------------------------------
Auditing fees 18,500
- ------------------------------------------------------------------------------------
Legal fees 8,500
- ------------------------------------------------------------------------------------
Printing and postage 93,750
- ------------------------------------------------------------------------------------
Taxes 180,500
- ------------------------------------------------------------------------------------
Insurance premiums 250
- ------------------------------------------------------------------------------------
Miscellaneous 5,500
- ------------------------------------------------------------------------------------ ------------
Total expenses 5,835,999
- ------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 736,975
- ------------------------------------------------------------------------------------ ------------
Net expenses 5,099,024
- -------------------------------------------------------------------------------------------------- --------------
Net investment income $ 23,155,388
- -------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (8,631,046)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (21,230,255)
- -------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized loss on investments (29,861,301)
- -------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations ($ 6,705,913)
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
1995* 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------------
Net investment income $ 23,155,388 $ 43,175,133
- ------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($8,631,046 net loss and $11,416,757 net
gain, respectively, as computed for federal tax purposes) (8,631,046) 12,441,016
- ------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (21,230,255) (18,342,651)
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets resulting from operations (6,705,913) 37,273,498
- ------------------------------------------------------------------------------------ ------------- -------------
NET EQUALIZATION (DEBITS)/CREDITS (570,711) 1,150,284
- ------------------------------------------------------------------------------------ ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ------------------------------------------------------------------------------------
Class A Shares (21,238,230) (41,477,441)
- ------------------------------------------------------------------------------------
Class C Shares (1,372,124) (965,765)
- ------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions:
- ------------------------------------------------------------------------------------
Class A Shares (15,754,603) (2,715,075)
- ------------------------------------------------------------------------------------
Class C Shares (1,215,280) (101,609)
- ------------------------------------------------------------------------------------
Tax return of capital distribution:**
- ------------------------------------------------------------------------------------
Class A Shares (21,983,626) --
- ------------------------------------------------------------------------------------
Class C Shares (1,746,374) --
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets from distributions to shareholders (63,310,237) (45,259,890)
- ------------------------------------------------------------------------------------ ------------- -------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------------------------------------------------------------
Proceeds from sale of shares 49,373,782 327,197,815
- ------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 47,896,388 31,818,829
- ------------------------------------------------------------------------------------
Cost of shares redeemed (101,518,909) (149,769,576)
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets from capital stock transactions (4,248,739) 209,247,068
- ------------------------------------------------------------------------------------ ------------- -------------
Change in net assets (74,835,600) 202,410,960
- ------------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------------
Beginning of period 941,922,323 739,511,363
- ------------------------------------------------------------------------------------ ------------- -------------
End of period (including undistributed net investment income of
$14,272,429 and $14,298,106, respectively) $ 867,086,723 $ 941,922,323
- ------------------------------------------------------------------------------------ ------------- -------------
</TABLE>
* Six months ended August 31, 1994 (unaudited).
** Estimated for the six months ended August 31, 1994. The actual amount will be
determined at the fiscal year end, February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, OR 29
1995* 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15 $ 9.15
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.30 0.60 0.58 0.68 0.71 0.71 0.72
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.37) -- 1.44 0.92 0.43 0.79 (0.02)
- ----------------------------------------------------- --------- --------- --------- --------- --------- --------- --------
Total from investment operations (0.07) 0.60 2.02 1.60 1.14 1.50 0.70
- -----------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Dividends to shareholders from net investment income (0.30) (0.61) (0.66) (0.64) (0.70) (0.76) (0.70)
- -----------------------------------------------------
Dividends to shareholders from net realized gain on
investment transactions (0.23) (0.04) (0.10) (0.06) (0.13) (0.07) --
- -----------------------------------------------------
Tax return of capital distribution (c) (0.31) -- -- -- -- -- --
- ----------------------------------------------------- --------- --------- --------- --------- --------- --------- --------
Total distributions (0.84) (0.65) (0.76) (0.70) (0.83) (0.83) (0.70)
- ----------------------------------------------------- --------- --------- --------- --------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 11.33 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15
- ----------------------------------------------------- --------- --------- --------- --------- --------- --------- --------
TOTAL RETURN*** (.42%) 4.93% 19.26% 16.48% 12.41% 16.72% 8.00%
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.10%(b) 1.12% 1.04% 1.05% 1.02% 1.02% 1.00%
- -----------------------------------------------------
Net investment income 5.28%(b) 4.81% 5.98% 6.31% 7.41% 7.17% 8.04%
- -----------------------------------------------------
Expense waiver/reimbursement (a) 0.17%(b) 0.17% 0.01% 0.19% 0.51% 0.74% 0.40%
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $803,332 $877,513 $739,511 $375,656 $125,599 $48,050 $410,575
- -----------------------------------------------------
Portfolio turnover rate 17% 24% 18% 35% 45% 37% 34%
- -----------------------------------------------------
<CAPTION>
<S> <C>
1988**
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.30
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.55
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.31)
- ----------------------------------------------------- -----
Total from investment operations 0.24
- -----------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Dividends to shareholders from net investment income (0.39)
- -----------------------------------------------------
Dividends to shareholders from net realized gain on
investment transactions --
- -----------------------------------------------------
Tax return of capital distribution (c) --
- ----------------------------------------------------- -----
Total distributions (0.39)
- ----------------------------------------------------- -----
NET ASSET VALUE, END OF PERIOD $ 9.15
- ----------------------------------------------------- -----
TOTAL RETURN*** 3.25%
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.56%(b)
- -----------------------------------------------------
Net investment income 8.24%(b)
- -----------------------------------------------------
Expense waiver/reimbursement (a) 0.38%(b)
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $ 52,947
- -----------------------------------------------------
Portfolio turnover rate 17%
- -----------------------------------------------------
</TABLE>
* Six months ended August 31, 1994 (unaudited).
** Reflects operations for the period from June 5, 1987 through February 29,
1988. For the period from the start of business, May 28, 1987 to June 4,
1987, net investment income aggregating $0.012 per share ($124) was
distributed to the Fund's Investment Adviser.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
(c) Estimated for the six months ended August 31, 1994. The actual amount will
be determined at the fiscal year end, February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1995* 1994**
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.23 $ 12.27
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.26 0.48
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.38) (0.07)
- --------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations (0.12) 0.41
- --------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.26) (0.41)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions (0.23) (0.04)
- ---------------------------------------------------------------------------------------------
Tax return of capital distribution (c) (0.31) --
- --------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.80) (0.45)
- --------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.31 $ 12.23
- --------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN*** (0.89)% 3.28%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.85 (b) 1.87%(b)
- ---------------------------------------------------------------------------------------------
Net investment income 4.54 (b) 4.02%(b)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.17 (b) 0.17%(b)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 63,755 $ 64,409
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 17% 24 %
- ---------------------------------------------------------------------------------------------
</TABLE>
* Six months ended August 31, 1994 (unaudited).
** Reflects operations for the period from April 30, 1993 (date of initial
public offering) to February 28, 1994.
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
(c) Estimated for the six months ended August 31, 1994. The actual amount will
be determined at the fiscal year end, February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
Liberty Utility Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
August 31, 1994
(unaudited)
(1) ORGANIZATION
Liberty Utility Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, diversified,
management investment company.
The Fund provides two classes of shares: Class A Shares and Class C Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Directors (the "Directors"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income and expenses are accrued daily. Bond premium and discount,
if applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Based on current projections, of income and
outstanding shares as of August 31, 1994, an estimated $0.31 per share is
expected to be reported as a return of capital for federal income tax
purposes.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. However,
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
federal taxes may be imposed on the Fund upon the disposition of certain
investments in Passive Foreign Investment Companies. Withholding taxes on
foreign dividends has been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.
E. EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of capital stock equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of capital stock.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
G. RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under Federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee. Additional information on each restricted security held
at August 31, 1994 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Cointel/Telefonica de Argentina PRIDES 2/24/94 13,320,000
Freeport McMoRan, Inc. 6/28/93-8/16/93 9,851,250
Occidental Petroleum Corp. 2/11/93 22,325,000
Philippine Long Distance 10/9/92 10,625,000
Westinghouse Electric Corp. PEPS 3/22/94 27,464,880
</TABLE>
H. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At August 31, 1994, there were 1,000,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock were as follows:
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995* 1994
--------------------------- ------------------------------
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Shares sold 3,243,090 $ 36,821,356 20,606,339 $ 255,156,993
- ----------------------------------------------------
Shares issued to shareholders
in payment of dividends declared 4,100,294 45,819,524 2,539,366 31,371,725
- ----------------------------------------------------
Shares redeemed (8,084,022) (91,167,826) (11,621,645) (143,855,060)
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
Net change resulting from
Class A Share transactions (740,638) ($ 8,526,946) 11,524,060 $ 142,673,658
- ---------------------------------------------------- ----------- -------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1995* 1994
-------------------------- ----------------------------
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------ ---------- -------------- ------------ --------------
Shares sold 1,093,884 $ 12,552,426 5,706,191 $ 72,040,822
- ------------------------------------------------------
Shares issued to shareholders
in payment of dividends declared 186,074 2,076,864 35,769 447,104
- ------------------------------------------------------
Shares redeemed (913,017) (10,351,083) (474,092) (5,914,516)
- ------------------------------------------------------ ---------- -------------- ------------ --------------
Net change resulting from
Class C Share transactions 366,941 $ 4,278,207 5,267,868 $ 66,573,410
- ------------------------------------------------------ ---------- -------------- ------------ --------------
Net change resulting from
Fund Share transactions (373,697) ($ 4,248,739) 16,791,928 $ 209,247,068
- ------------------------------------------------------ ---------- -------------- ------------ --------------
</TABLE>
* Six months ended August 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Passport Research, Ltd., the Fund's investment Adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
Liberty Utility Fund, Inc.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class C Shares. The Plan provides that the Fund
may incur distribution expenses up to 0.75 of 1% of the average daily net assets
of the Class C Shares, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25 of 1% of average daily net
assets of the Fund for the period. This fee is to obtain certain personal
services for shareholders and to maintain the shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The FServ fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended August 31, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 147,047,020
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 217,684,406
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(6) SUBSEQUENT EVENT
Effective September 27, 1994, the Fund added Class B Shares.
As of October 1, 1994, the maximum sales load as a percentage of the public
offering price is 5.5%.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Directors Officers
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. Daniel A. Burkhardt
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. J. Christopher Donahue
Peter E. Madden Vice President
Gregor F. Meyer Edward C. Gonzales
Wesley W. Posvar Vice President and Treasurer
Marjorie P. Smuts John W. McGonigle
Vice President and Secretary
David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the FDIC, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO] FEDERATED SECURITIES CORP.
-------------------------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
531545101
531545200
531545309
8092606 (10/94)
APPENDIX
A. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant of the graphic presentation indicating
the components of the corresponding mountain chart. The color-coded
mountain chart is a visual representation of the narrative text beneath
it, which shows hypothetical growth over time in Liberty Utility Fund,
Inc. beginning with an initial investment of $7,000 in the Fund on May
27, 1988, which would have grown to $14,237 in 1994. The "x" axis
reflects computation periods from May 27, 1988 to 1994. The "y" axis
reflects a total investment range from $0 to $15,000. The chart further
indicates the ending market value attributable to principal, as well as
the ending market value attributable to capital gains and reinvested
dividends.
B. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant of the graphic presentation indicating
the components of the corresponding mountain chart. The color-coded
mountain chart is a visual representation of the narrative text beneath
it, which shows hypothetical growth over time in Liberty Utility Fund,
Inc. of yearly investments of $1,000. The "x" axis reflects computation
periods from May 27, 1988 to 1994. The "y" axis reflects a total
investment range from $0 to $10,000. The color-coded bar chart assumes
an initial investment of $1,000 on 5/27/88 and six subsequent
investments of $1,000 on each anniversary date for a total of $7,000.
The chart concludes that the investment would have grown to $9,720. The
chart further indicates the ending market value attributable to
principal, as well as the ending market value attributable to capital
gains and reinvested dividends.
C. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant of the graphic presentation indicating
the components of the corresponding mountain chart. The color-coded
mountain chart is a visual representation of the narrative text beneath
it, which shows hypothetical quarterly income growth over time in
Liberty Utility Fund, Inc. beginning with an initial investment of
$50,000 in the Fund on May 27, 1988. The "x" axis reflects computation
periods from May 27, 1988 to 1994. The "y" axis reflects an annual
dividend and capital gains payment range from $0 to $5,000.
