1933 Act File No. 33-10209
1940 Act File No. 811-4530
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. 9 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 10 X
FORTRESS UTILITY 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 July 29, 1994 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 July 15, 1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2),
need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro &
Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of
FORTRESS UTILITY FUND, INC. 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.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights.
Item 4. General Description of
Registrant Performance Information;
General Information;
Fortress Investment
Program; Investment
Information; Investment
Objective; Investment
Policies; Portfolio
Turnover; Investment
Risks; Investment
Limitations.
Item 5. Management of the Fund Fund Information;
Management of the Fund;
Distribution of Fund
Shares; Administration of
the Fund; Shareholder
Services Plan; Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities Dividends and
Distributions;
Shareholder Information;
Voting Rights; Tax
Information; Federal
Income Tax; Pennsylvania
Corporate and Personal
Property Taxes.
Item 7. Purchase of Securities Being
Offered Net Asset Value;
Investing in the Fund;
Share Purchases; Minimum
Investment Required; What
Shares Cost; Eliminating
the Sales Load;
Systematic Investment
Program; Exchange
Privilege; Certificates
and Confirmations;
Retirement Plans.
Item 8. Redemption or Repurchase Redeeming Shares; Through
a Financial Institution;
By Telephone; Directly By
Mail; Contingent Deferred
Sales Charge; Systematic
Withdrawal Program;
Accounts With Low
Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About
the Fund.
Item 13. Investment Objectives and
Policies Investment Objective and
Policies; Concentration
of Investments;
Investment Limitations.
Item 14. Management of the Fund Fund Management.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services Investment Advisory
Services; Other Payments
to Financial
Institutions;
Administrative Services;
Shareholder Services
Plan.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered Purchasing Shares;
Determining Net Asset
Value; Redeeming Shares;
Exchanging Securities for
Fund Shares; Exchange
Privilege.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data Total Return; Yield;
Performance Comparisons.
Item 23. Financial Statements Included in Part A.
FORTRESS UTILITY FUND, INC.
PROSPECTUS
An open-end, diversified management investment company (a mutual fund) investing
in equity and debt securities of utility companies to achieve high current
income and moderate capital appreciation.
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 RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Fortress Utility Fund, Inc. (the "Fund"). Keep this prospectus for
future reference.
The Fund has also filed a Statement of Additional Information dated July 31,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the 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 July 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
FORTRESS INVESTMENT PROGRAM 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 4
Acceptable Investments 4
Common Stocks 4
Securities of Foreign Issuers 4
Other Securities 5
Restricted and Illiquid Securities 5
Temporary Investments 5
Repurchase Agreements 5
Reverse Repurchase Agreements 5
Lending of Portfolio Securities 6
When-Issued and Delayed
Delivery Transactions 6
Portfolio Turnover 6
Investment Risks 6
Reducing Risks of Utility Securities 6
Investment Limitations 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN THE FUND 7
- ------------------------------------------------------
Share Purchases 7
Through a Financial Institution 7
Directly By Mail 8
Directly By Wire 8
Minimum Investment Required 8
What Shares Cost 8
Dealer Concession 9
Eliminating the Sales Load 9
Quantity Discounts and Accumulated
Purchases 9
Letter of Intent 10
Reinvestment Privilege 10
Concurrent Purchases 10
Systematic Investment Program 10
Exchange Privilege 11
Certificates and Confirmations 11
Dividends and Distributions 11
Retirement Plans 11
REDEEMING SHARES 12
- ------------------------------------------------------
Through a Financial Institution 12
By Telephone 12
Directly By Mail 13
Signatures 13
Receiving Payment 13
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 15
FUND INFORMATION 15
- ------------------------------------------------------
Management of the Fund 15
Board of Directors 15
Investment Adviser 15
Advisory Fees 15
Adviser's Background 15
Distribution of Fund Shares 16
Other Payments to Financial Institutions 16
Administration of the Fund 17
Administrative Services 17
Shareholder Services Plan 17
Custodian 17
Transfer Agent and Dividend
Disbursing Agent 17
Legal Counsel 17
Independent Auditors 18
Brokerage Transactions 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
Pennsylvania Corporate and
Personal Property Taxes 19
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
REPORT OF ERNST & YOUNG,
INDEPENDENT AUDITORS 30
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................... 1.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................ None
Exchange Fee.................................................................................. None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (2)............................................................. 0.63%
12b-1 Fee..................................................................................... None
Total Other Expenses.......................................................................... 0.48%
Shareholder Services Fee (3).............................................................. 0.20%
Total Fund Operating Expenses (4).................................................... 1.11%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
four years of their purchase date. For a more complete description see
"Redeeming 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
0.75%.
(3) The maximum shareholder services fee is 0.25%.
(4) The Total Fund Operating Expenses would have been 1.23% 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 THE FUND WILL BEAR, EITHER DIRECTLY OR
INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES,
SEE "FUND INFORMATION," "REDEEMING SHARES," AND "INVESTING IN THE FUND." 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....... $31 $56 $71 $144
You would pay the following expenses on the same investment, assuming no
redemption............................................................... $21 $45 $71 $144
</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.
FORTRESS UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young, Independent Auditors, on page
30.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987*
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18 $ 10.00
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.63 0.68 0.69 0.77 0.67 0.63 0.63 0.24
- -------------------------------------
Net realized and unrealized gain
(loss) on investments (0.61) 1.25 1.07 0.51 0.48 0.77 (0.34) (0.98)
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.02 1.93 1.76 1.28 1.15 1.40 0.29 (0.74)
- -------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------
Dividends to shareholders from net
investment income (0.61) (0.67) (0.66) (0.75) (0.71) (0.60) (0.57) (0.08)
- -------------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.01) (0.05) -- (0.08) -- -- -- --
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.62) (0.72) (0.66) (0.83) (0.71) (0.60) (0.57) (0.08)
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 12.30 $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 0.01% 17.02% 17.07% 13.44% 12.13% 16.47% 3.21% (7.74)%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.11% 1.07% 1.10% 1.03% 1.05% 1.08% 1.04% 0.53%(b)
- -------------------------------------
Net investment income 4.92% 5.45% 6.01% 7.12% 6.77% 6.92% 7.18% 7.95%(b)
- -------------------------------------
Expense waiver/reimbursement (a) 0.12% 0.05% 0.11% 0.61% 1.39% 0.86% 1.00% 0.97%(b)
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000
omitted) $892,490 $742,067 $247,482 $66,578 $29,844 $13,476 $9,256 $6,305
- -------------------------------------
Portfolio turnover rate 28% 27% 26% 53% 49% 17% 23% 12%
- -------------------------------------
</TABLE>
* Reflects operations for the period from January 30, 1987 to May 31, 1987.
For the period from the start of business January 14, 1987 to January 29,
1987, net investment income aggregating $0.024 per share ($244) was
distributed to the Fund's investment adviser. Such distribution represented
net income of the Fund prior to the initial public offering of Fund shares
which commenced on January 30, 1987.
** 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 (Note 4).
(b) 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 May 31, 1994, which can be obtained free
of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was established as a Massachusetts business trust on October 15, 1986,
and reorganized as a corporation under the laws of the state of Maryland on May
30, 1990. The Fund is designed to give individuals and institutions a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of equity and debt securities of utility companies. A minimum initial
investment of $1,500 is required, except for an IRA account which requires a $50
minimum initial investment.
Fund 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 four years of their purchase dates.
FORTRESS INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
This Fund is a member of a family of funds, collectively known as the Fortress
Investment Program. The funds in the Program are:
California Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax and California personal
income taxes;
_ Fortress Adjustable Rate U.S. Government Fund, Inc., providing current
income consistent with lower volatility of principal through a
diversified portfolio of adjustable and floating rate mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
_ Fortress Bond Fund, providing current income primarily through
high-quality corporate debt;
_ Fortress Municipal Income Fund, Inc., providing a high level of current
income generally exempt from the federal regular income tax by investing
primarily in a diversified portfolio of municipal bonds;
_ Fortress Utility Fund, Inc., providing high current income and moderate
capital appreciation primarily through equity and debt securities of
utility companies;
_ Government Income Securities, Inc., providing current income through
long-term U.S. government securities;
_ Limited Term Fund (Fortress Shares only), providing a high level of
current income consistent with minimum fluctuation in principal value;
_ Limited Term Municipal Fund (Fortress Shares only), providing a high
level of current income which is exempt from federal income tax
consistent with the preservation of capital;
_ Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
_ New York Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax, New York personal income
taxes, and New York City income taxes; and
_ Ohio Municipal Income Fund (Fortress Shares only), providing current
income exempt from federal regular income tax and Ohio personal income
taxes.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus. Prospectuses for these Funds are available
by writing to Federated Securities Corp.
The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles, and by providing
the investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve high current income and
moderate capital appreciation by investing primarily in a professionally managed
and diversified portfolio of equity and debt securities of utility companies.
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 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's investment approach is based on the
conviction that over the long-term, the economy will continue to expand and
develop and that this economic growth will be reflected in the growth of the
revenues and earnings of utility companies. The Fund intends to achieve its
investment objective by investing in equity and debt securities of utility
companies that produce, transmit, or distribute gas and electric energy as well
as those companies that provide communications facilities, such as telephone and
telegraph companies. As a matter of investment policy which can be changed
without shareholder vote, the Fund will invest at least 65% of its total assets
in securities of utility companies. The Fund may also engage in put and call
options, financial futures, and options on futures.
COMMON STOCKS. The Fund invests primarily in common stocks of utility
companies selected by the Fund's investment adviser on the basis of
traditional research techniques, including assessment of earnings and
dividend growth prospects and of the risk and volatility of the company's
industry. However, other factors, such as product position, market share,
or profitability will also be considered by the Fund's investment adviser.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in the securities of
foreign issuers which are freely traded on United States securities
exchanges or in the over-the-counter market in the form of depository
receipts. Securities of a foreign issuer may present greater risks in the
form of nationalization, confiscation, domestic marketability, or other
national or international restrictions. As a matter of practice, the Fund
will not invest in the securities of a foreign issuer if any such risk
appears to the investment adviser to be substantial.
OTHER SECURITIES. The Fund may invest in preferred stocks, corporate
bonds, notes, and warrants of these companies and in cash, U.S. government
securities, and money market instruments in proportions determined by its
investment adviser. The prices of fixed income securities fluctuate
inversely to the direction of interest rates.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions upon resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its total 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, as amended
("Section 4(2)"). 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.
TEMPORARY INVESTMENTS. The Fund may also invest temporarily in cash, cash
items, and short-term instruments, including notes and commercial paper, for
liquidity and during times of unusual market conditions for defensive purposes.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. 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 found by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Directors.
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.
When effecting reverse repurchase agreements, assets of the Fund, in a dollar
amount sufficient to make payment for the obligations to be purchased, are
segregated on the Fund's records at the trade date and maintained until the
transaction is settled.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or a long-term basis up
to one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Board of Directors and will receive collateral equal to at least
100% of the value of the securities loaned.
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 or sells securities with payment and delivery
scheduled for a future time. The Fund engages in when-issued and delayed
delivery transactions only for the purpose of acquiring portfolio securities
consistent with the Fund's investment objective and policies, not for investment
leverage. In when-issued and delayed delivery transactions, the Fund relies on
the seller to complete the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous. The Fund will limit its purchases of securities on a when-issued
or delayed delivery basis to no more than 10% of the value of its total assets.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever the Fund's
investment adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held.
INVESTMENT RISKS
Because of the Fund's investment concentration, there exist certain risks
associated with the utility industry of which investors should be aware. These
include difficulty in earning adequate returns on investment despite frequent
rate increases, restrictions on operations and increased costs and delays due to
governmental regulations, building or construction delays, environmental
regulations, difficulty of the capital markets in absorbing utility debt and
equity securities, and difficulties in obtaining fuel at reasonable prices.
REDUCING RISKS OF UTILITY SECURITIES. The Fund's adviser believes that the
risks of investing in utility securities can be reduced. The professional
portfolio management techniques used by the Fund to attempt to reduce these
risks include credit research. The Fund's investment adviser will perform its
own credit analysis in addition to using recognized rating agencies and other
sources, including discussions with the issuer's management, the judgment of
other investment analysts, and its own informed judgment. The adviser's credit
analysis will consider the issuer's financial soundness, its responsiveness to
changes in interest rates and business conditions, and its anticipated cash
flow, interest or dividend coverage, and earnings. In evaluating an issuer, the
adviser places special emphasis on the estimated current value of the issuer's
assets rather than historical costs.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, 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;
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items and U.S. government securities);
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations;
invest more than 10% of its total assets in certain securities subject to
restrictions on resale under federal securities law;
acquire more than 10% of any class of voting securities of any issuer; or
underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale
of restricted securities which the Fund may purchase pursuant to its
investment objective, policies, and limitations.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open.
Shares of the Fund may be purchased through a financial institution (such as a
bank or investment dealer) which has a sales agreement with the distributor or
directly from Federated Securities Corp., either by mail or wire. The Fund
reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
to place an order to purchase shares of the Fund. 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. Orders through a
financial institution are considered received when the Fund is notified of the
purchase order. 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 of the Fund by mail, directly from
Federated Securities Corp.:
complete and sign the application available from the Fund;
enclose a check made payable to Fortress Utility Fund, Inc.; and
send both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company ("State Street Bank"), P.O. Box 8604,
Boston, MA 02266-8604.
Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, 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 of the Fund directly from Federated
Securities Corp. by Federal Reserve wire, call the Fund. All information needed
will be taken over the telephone, and the order is considered received when the
Fund receives payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500 unless the investment is in
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
Fund shares are sold at their net asset value, less any applicable contingent
deferred sales charge, 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. Investors who
purchase Fund shares through a non-affiliated bank, broker, or institution may
be charged an additional service fee by that bank, broker, or institution. This
prospectus should, therefore, be read together with any agreement between
customer and institution with regard to services provided, the fees charged for
these services, and any restrictions and limitations imposed.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Shares," shareholders may
be charged a contingent deferred sales charge by the distributor at the time
shares are redeemed.
Shareholders of record in the Fund on September 30, 1989, are exempt from the
sales load for purchases of shares of the Fund in their existing accounts as
long as they maintain a $500 balance in the Fund. Financial institutions
(including depository institutions such as commercial banks and savings and loan
associations) are also exempt from sales loads when purchasing shares directly
from the Fund's distributor for their own accounts. In addition, no sales load
is imposed for Fund 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.
DEALER CONCESSION. For sales of shares of the Fund, the distributor will
normally 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 significant amount of Shares.
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 Fund shares.
ELIMINATING THE SALES LOAD
The sales load can be eliminated on the purchase of Fund 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. In addition, the sales load is eliminated for
purchases of $1 million or more made at one time by a trustee or fiduciary for a
single trust estate or a single fiduciary account.
If an additional purchase of Fund 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 or 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 of the Fund having a current value at public
offering price of $1 million and purchases an additional $1 million at the
current public offering price, the applicable contingent deferred sales charge
would be reduced to .50% of those additional shares. For more information on the
levels of 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 or her financial institution at the time the purchase is
made that Fund 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
Fund shares over the next 13 months, the sales load may be eliminated 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 of the Fund)
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 Fund 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 in the Fund, the
shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales 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 in the
Fund, 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 prices of which include a
sales load. For example, if a shareholder concurrently invested $400,000 in one
of the other Fortress Funds and $600,000 in the Fund, 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 Fund shares
at the net asset value next determined after an order is received by State
Street Bank, 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.
EXCHANGE PRIVILEGE
Shares in Fortress Utility Fund, Inc. or in other Fortress Funds may be
exchanged for shares in the Fortress Investment Program at net asset value
without a sales load (if previously paid) or a contingent deferred sales charge.
The exchange privilege is available to shareholders residing in any state in
which the shares being acquired may be legally sold.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Shares at net asset
value. 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 the exchange 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. Shareholders who desire to automatically
exchange Shares of a pre-determined amount on a monthly, quarterly, annual or
other periodic 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 a financial institution may request exchange by telephone on behalf of a
shareholder, an authorization form permitting the Fund to accept exchange by
telephone must first be completed. Exchange 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.
Exercise of the exchange privilege is treated as a sale for federal income tax
purposes. Depending on the circumstances, a short-term or long-term capital gain
or loss may be realized. 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 confirmations are sent to report dividends paid during that
quarter.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Unless shareholders request cash
payments on the application or by writing to Federated Securities Corp.,
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.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
Federated Securities Corp. and consult a tax adviser.
REDEEMING 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.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his or her financial
institution (such as a bank or an investment dealer) to request the redemption.
Shares will be redeemed at the net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time) in order
for shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Directly by Mail," should be considered.
BY TELEPHONE
Shareholders who have not purchased through a financial institution may redeem
their Shares by telephoning the Fund. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days, after
the request. The minimum amount for a wire transfer is $1,000. If at any time
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
DIRECTLY BY MAIL
Shareholders may also redeem shares by sending a written request to Federated
Services Company, c/o State Street Bank, P.O. Box 8604, Boston, MA 02266-8604.
This written request must include the shareholder's name, the Fund name, the
Fund 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 may call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures of all registered owners on written redemption requests
guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Company ("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 ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. A check for the proceeds is mailed within seven days after
receipt of proper written redemption instructions from a broker or from the
shareholder, provided the Fund has collected payment for shares from the
shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from their Fund accounts within certain time
periods of the purchase date of those shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the shares redeemed as follows:
<TABLE>
<S> <C> <C>
Amount of Purchase Shares Held Redemption Fee
Up to $1,999,999 less than 4 years 1%
$2,000,000 to $4,999,999 less than 2 years .50%
$5,000,000 or more less than 1 year .25%
</TABLE>
To the extent that a shareholder exchanging 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 Fund 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 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 purchase 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 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 assessed 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 no payment was advanced for
purchases made by such entities. In addition, shares held in the Fund by a
financial institution for its own account, which were originally purchased by
the financial institution directly from the Fund's distributor without a sales
load may be redeemed without a contingent deferred sales charge. For more
information, see "Other Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund 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 Fund shares, and the fluctuation of the net asset
value of Fund shares redeemed under this program, redemptions may reduce, and
eventually use up, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have 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, it is
not advisable for shareholders to be purchasing shares while participating in
this program.
A contingent deferred sales charge is imposed on shares, other than shares
purchased through reinvestment of dividends, which are 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, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a 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.
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. The 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
Management, the Fund's investment adviser, subject to direction by the
Directors. The investment adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's investment adviser receives an annual investment
advisory fee equal to .75 of 1% of the Fund's average daily net assets. The
investment adviser may voluntarily choose to waive a portion of its fee or
reimburse the Fund for certain operating expenses. The investment adviser
can terminate this voluntary waiver of its advisory fee at any time at its
sole discretion. The investment adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by
certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940, as amended. 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 Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also
provide administrative services to a number of investment companies. Total
assets under management or administration by these and other subsidiaries
of Federated Investors are approximately $70 billion. Federated Investors,
which was founded in 1956 as Federated Investors, Inc., develops and
manages mutual funds primarily for the financial industry. Federated
Investors' track record of competitive performance and its disciplined,
risk averse investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions, individual
shareholders also have access to this same level of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since May 1990.
Mr. Wiles joined Federated Investors in 1990 and has been a Vice President
of the Fund's investment adviser since 1992. Mr. Wiles served as Assistant
Vice President of the Fund's investment adviser from 1990 to 1992. Mr.
Wiles was a portfolio manager at Mellon Bank from 1986 until 1990. Mr.
Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance
from Cleveland State University.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
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.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor may select
administrators (including broker/dealers and depository institutions such as
commercial banks and savings and loan associations) to provide distribution and
administrative services. These services include, but are not limited to,
distributing prospectuses and other information, providing accounting
assistance, and communicating or facilitating purchases and redemptions of Fund
shares. These administrative services are in addition to other services that may
be performed by a financial institution in a role such as custodian for
Individual Retirement Accounts included in the Fortress Investment Program.
Financial institutions may also charge their customers fees for such other
services.
The distributor will pay administrators for the above services an amount equal
to 1% 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% sales charge on purchases
of less than $1 million.) In addition, the distributor will pay brokers an
annual fee of .25 of 1% of the average daily net asset value of shares owned by
their clients or customers for which they perform services. The administrator
may elect to receive amounts lesser than those stated which would reduce or
eliminate the stated redemption fee and/or the holding period used to calculate
the fee.
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 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 Fund's investment
adviser or its affiliates.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of 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
distributor and adviser will consider appropriate changes in the administrative
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 (the "Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. _The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it make payments up to 0.25 of 1% of the
average daily net asset value of the Fund 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 Shareholders
Services.
CUSTODIAN. _State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh and Dickstein, Shapiro & Morin, L.L.P., Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the investment 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 investment 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
investment adviser makes decisions on portfolio transactions and selects brokers
and dealers subject to review by the Board of Directors.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings of shareholders.
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 majority vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the 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 their shares. No federal income tax is due on
any dividends earned in an IRA or qualified retirement plan until distributed,
so long as such IRA or qualified retirement plan meets the applicable
requirements of the Internal Revenue Code.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund 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.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund 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
the Fund 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 and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
FORTRESS UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------- ---------------
COMMON STOCKS--61.2%
- -----------------------------------------------------------------------------------------------
UTILITIES--54.3%
-------------------------------------------------------------------------------
445,000 Baltimore Gas & Electric Co. $ 10,123,750
-------------------------------------------------------------------------------
700,000 BCE, Inc. 24,762,500
-------------------------------------------------------------------------------
625,000 British Telecommunications, ADR 23,815,625
-------------------------------------------------------------------------------
77,200 Cilcorp, Inc. 2,383,550
-------------------------------------------------------------------------------
500,000 Cincinnati Gas & Electric Co. 11,312,500
-------------------------------------------------------------------------------
525,000 CMS Energy Corp. 11,878,125
-------------------------------------------------------------------------------
400,000 Consolidated Edison Co. 11,050,000
-------------------------------------------------------------------------------
657,000 DPL, Inc. 13,222,125
-------------------------------------------------------------------------------
500,000 DQE, Inc. 15,875,000
-------------------------------------------------------------------------------
300,000 Duke Power Co. 10,800,000
-------------------------------------------------------------------------------
446,400 Entergy Corp. 12,889,800
-------------------------------------------------------------------------------
400,000 Florida Progress Corp. 10,750,000
-------------------------------------------------------------------------------
222,600 FPL Group, Inc. 7,067,550
-------------------------------------------------------------------------------
650,000 General Public Utilities 18,606,250
-------------------------------------------------------------------------------
500,000 GTE Corp. 15,437,500
-------------------------------------------------------------------------------
300,000 Hong Kong Telecommunications, ADR 17,512,500
-------------------------------------------------------------------------------
600,000 Long Island Lighting Co. 12,075,000
-------------------------------------------------------------------------------
269,000 MCN Corp. 10,625,500
-------------------------------------------------------------------------------
600,000 NIPSCO Industries, Inc. 18,450,000
-------------------------------------------------------------------------------
700,000 Northeast Utilities Co. 15,925,000
-------------------------------------------------------------------------------
550,000 NYNEX Corp. 20,762,500
-------------------------------------------------------------------------------
800,000 Pacific Enterprises 16,500,000
-------------------------------------------------------------------------------
1,000,000 Pacificorp 17,625,000
-------------------------------------------------------------------------------
700,000 Peco Energy Co. 19,075,000
-------------------------------------------------------------------------------
225,000 Peoples Energy Corp. 6,271,875
-------------------------------------------------------------------------------
600,000 (a)Pinnacle West Capital Corp. $ 10,425,000
-------------------------------------------------------------------------------
460,000 PSI Resources, Inc. 10,120,000
-------------------------------------------------------------------------------
525,000 Public Service Enterprises Group, Inc. 14,568,750
-------------------------------------------------------------------------------
750,000 Sonat, Inc. 21,375,000
-------------------------------------------------------------------------------
710,000 Southern Co. 13,135,000
-------------------------------------------------------------------------------
150,000 Southern Indiana Gas & Electric Co. 4,162,500
-------------------------------------------------------------------------------
500,000 Southern New England Telecommunications 16,125,000
-------------------------------------------------------------------------------
482,300 UGI Corp. 10,128,300
-------------------------------------------------------------------------------
616,184 Utilicorp United, Inc. 17,792,313
-------------------------------------------------------------------------------
425,000 Western Resources, Inc. 11,900,000
------------------------------------------------------------------------------- ---------------
Total 484,528,513
------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--0.5%
-------------------------------------------------------------------------------
335,000 Southwestern Properties, REIT 4,313,125
------------------------------------------------------------------------------- ---------------
CONSUMER SERVICES--2.4%
-------------------------------------------------------------------------------
275,000 CBL and Associates, REIT 5,293,750
-------------------------------------------------------------------------------
593,500 Simon Property Group, Inc., REIT 16,247,063
------------------------------------------------------------------------------- ---------------
Total 21,540,813
------------------------------------------------------------------------------- ---------------
ENERGY--2.1%
-------------------------------------------------------------------------------
300,000 Texaco, Inc. 19,050,000
------------------------------------------------------------------------------- ---------------
HEALTHCARE--1.9%
-------------------------------------------------------------------------------
500,000 Meditrust, REIT 17,375,000
------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $554,945,865) 546,807,451
------------------------------------------------------------------------------- ---------------
PREFERRED STOCKS--32.4%
- -----------------------------------------------------------------------------------------------
ADJUSTABLE RATE PREFERRED STOCKS--5.4%
-------------------------------------------------------------------------------
170,000 Enserch Corp., ARPS 16,957,500
-------------------------------------------------------------------------------
125,000 Illinova Corp., Pfd. B, ARPS 6,375,000
-------------------------------------------------------------------------------
150,000 Niagara Mohawk Power Corp., Pfd. C, ARPS 3,806,250
-------------------------------------------------------------------------------
65,045 Texas Utilities Electric Co., Pfd. A, ARPS $ 5,984,140
-------------------------------------------------------------------------------
90,000 Texas Utilities Electric Co., Pfd. B, ARPS 8,460,000
-------------------------------------------------------------------------------
178,000 Toledo Edison Co., Pfd. B, ARPS 4,027,250
-------------------------------------------------------------------------------
60,500 USX Marathon Group Corp., ARPS 3,017,437
------------------------------------------------------------------------------- ---------------
Total 48,627,577
------------------------------------------------------------------------------- ---------------
CONVERTIBLE PREFERRED STOCKS--27.0%
-------------------------------------------------------------------------------
22,400 Catellus Development Corp., Conv. Pfd., 7.50% 1,120,000
-------------------------------------------------------------------------------
200,000 Cointel/Telefonica De Argentina PRIDES, Conv. Pfd., 7% 14,096,600
-------------------------------------------------------------------------------
970,000 Citicorp, Conv. Pfd., Series P, 8.25% 18,915,000
-------------------------------------------------------------------------------
200,000 Freeport McMoran, Inc., Conv. Pfd., $4.375 9,325,000
-------------------------------------------------------------------------------
268,700 Kaufman and Broad Home Corp., Conv. Pfd., Series B, 8.75% 4,769,425
-------------------------------------------------------------------------------
350,000 Nacional Fin./TELMEX PRIDES, 11.25% 22,881,250
-------------------------------------------------------------------------------
400,000 Occidental Pete, Conv. Pfd., 7.75% 19,850,000
-------------------------------------------------------------------------------
475,000 Phillipine Long Distance, Conv. Pfd., 5.75% 19,613,700
-------------------------------------------------------------------------------
213,900 Reynolds Metals Co., Conv. Pfd., 7% 10,454,363
-------------------------------------------------------------------------------
2,274,500 RJR Nabisco Holdings, Inc., Conv. Pfd, 6.375% 14,499,938
-------------------------------------------------------------------------------
500,000 Sears Roebuck & Co., Conv. Pfd., Series A, $3.75 27,812,500
-------------------------------------------------------------------------------
277,500 Sun America Inc., Conv. Pfd., $2.78, Series D 10,510,312
-------------------------------------------------------------------------------
375,800 Sun America Inc., Conv. Pfd., Series P, 8.50% 6,529,525
-------------------------------------------------------------------------------
450,000 Tenneco, Inc., Conv. Pfd., 9.50% 18,056,250
-------------------------------------------------------------------------------
397,800 Unisys Corp., Conv. Pfd., $3.75 15,464,475
-------------------------------------------------------------------------------
1,925,000 Westinghouse Electric Corp., PEPS 9% 26,684,350
------------------------------------------------------------------------------- ---------------
Total 240,582,688
------------------------------------------------------------------------------- ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $276,063,456) 289,210,265
------------------------------------------------------------------------------- ---------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------- ---------------
CONVERTIBLE BONDS--4.5%
- -----------------------------------------------------------------------------------------------
$ 15,000,000 National Power, 6.25% Conv. Bonds, 9/23/2008 $ 24,418,341
-------------------------------------------------------------------------------
39,250,000 Turner Broadcasting System, Inc., LYON, 7.25% accrual, 2/13/2007 15,503,750
------------------------------------------------------------------------------- ---------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST, $40,866,478) 39,922,091
------------------------------------------------------------------------------- ---------------
*REPURCHASE AGREEMENT--0.7%
- -----------------------------------------------------------------------------------------------
5,870,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94
(at amortized cost) (Note 2B) 5,870,000
------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST, $877,745,799) $ 881,809,807\
------------------------------------------------------------------------------- ---------------
</TABLE>
(a) Non-income producing.
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations, based on market prices at the date of the portfolio. The
investment in the repurchase agreement was through participation in a joint
account with other Federated funds.
\ The cost for federal tax purposes amounts to $877,748,923. The net
unrealized appreciation of investments on a federal tax cost basis amounts
to $4,060,884, which is comprised of $48,067,721 appreciation and
$44,006,837 depreciation at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($892,490,239) at
May 31, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
ARPS--Adjustable Rate Preferred Stock
LYON--Liquid Yield Option Note
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)
FORTRESS UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B)
(identified cost, $877,745,799 and tax cost, $877,748,923) $ 881,809,807
- ------------------------------------------------------------------------------------------------
Cash 72,096
- ------------------------------------------------------------------------------------------------
Receivable for investments sold 9,237,692
- ------------------------------------------------------------------------------------------------
Dividends and interest receivable 5,745,813
- ------------------------------------------------------------------------------------------------
Receivable for capital stock sold 2,037,252
- ------------------------------------------------------------------------------------------------ ---------------
Total assets 898,902,660
- ------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------
Payable for investments purchased $ 157,412
- ---------------------------------------------------------------------------------
Dividends payable 1,908,031
- ---------------------------------------------------------------------------------
Payable for capital stock redeemed 3,971,381
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 375,597
- --------------------------------------------------------------------------------- -------------
Total liabilities 6,412,421
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS for 72,569,867 shares of capital stock outstanding $ 892,490,239
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------
Paid-in capital $ 868,997,502
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,064,008
- ------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (4,617,342)
- ------------------------------------------------------------------------------------------------
Undistributed net investment income 24,046,071
- ------------------------------------------------------------------------------------------------ ---------------
Total Net Assets $ 892,490,239
- ------------------------------------------------------------------------------------------------ ---------------
NET ASSET VALUE, Per Share
($892,490,239 / 72,569,867 shares of capital stock outstanding) $12.30
- ------------------------------------------------------------------------------------------------ ---------------
Computation of Offering Price: Offering Price Per Share (100/99 of 12.30)* $12.42
- ------------------------------------------------------------------------------------------------ ---------------
Computation of Proceeds on Redemption:
Redemption Proceeds Per Share (99/100 of 12.30)** $12.18
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
* See "What Shares Cost" in the prospectus.
** Under certain conditions, the contingent deferred sales charge of 1.00% is
not imposed, as stated under "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
FORTRESS UTILITY FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Dividend income (Note 2C) $ 51,762,189
- -------------------------------------------------------------------------------------------------
Interest income (Note 2C) 4,121,203
- ------------------------------------------------------------------------------------------------- ---------------
Total investment income 55,883,392
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee* $ 6,950,251
- ---------------------------------------------------------------------------------
Directors' fees 15,203
- ---------------------------------------------------------------------------------
Administrative personnel and services* 1,008,365
- ---------------------------------------------------------------------------------
Custodian and portfolio accounting fees 253,405
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 939,281
- ---------------------------------------------------------------------------------
Shareholder services fees* 1,849,650
- ---------------------------------------------------------------------------------
Capital stock registration fees 149,490
- ---------------------------------------------------------------------------------
Auditing fees 16,800
- ---------------------------------------------------------------------------------
Legal fees 13,270
- ---------------------------------------------------------------------------------
Printing and postage 86,578
- ---------------------------------------------------------------------------------
Taxes 57,711
- ---------------------------------------------------------------------------------
Insurance premiums 18,510
- ---------------------------------------------------------------------------------
Miscellaneous 9,064
- --------------------------------------------------------------------------------- --------------
Total expenses 11,367,578
- ---------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee* 1,097,659
- --------------------------------------------------------------------------------- --------------
Net expenses 10,269,919
- ------------------------------------------------------------------------------------------------- ---------------
Net investment income 45,613,473
- ------------------------------------------------------------------------------------------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (2,146,782)
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (52,699,309)
- ------------------------------------------------------------------------------------------------- ---------------
Net realized and unrealized loss on investments (54,846,091)
- ------------------------------------------------------------------------------------------------- ---------------
Change in net assets resulting from operations $ (9,232,618)
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
* See Note 4.
(See Notes which are an integral part of the Financial Statements)
FORTRESS UTILITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------
1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------ ---------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------------
Net investment income $ 45,613,473 $ 24,600,206
- ------------------------------------------------------------------------------
Net realized gain (loss) on investments ($362,425 net gain
and $1,277,452 net gain, respectively, as computed for federal
tax purposes) (Note 2D) (2,146,782) 1,277,452
- ------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (52,699,309) 43,909,874
- ------------------------------------------------------------------------------ ---------------- ---------------
Change in net assets from operations (9,232,618) 69,787,532
- ------------------------------------------------------------------------------ ---------------- ---------------
NET EQUALIZATION (DEBITS)/CREDITS (NOTE 2E) 3,241,019 10,090,103
- ------------------------------------------------------------------------------ ---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (43,554,138) (24,938,735)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (790,659) (1,290,076)
- ------------------------------------------------------------------------------ ---------------- ---------------
Change in net assets from distributions to shareholders (44,344,797) (26,228,811)
- ------------------------------------------------------------------------------ ---------------- ---------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- ------------------------------------------------------------------------------
Net proceeds from sale of shares 481,074,828 492,480,678
- ------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 20,339,263 10,149,388
- ------------------------------------------------------------------------------
Cost of shares redeemed (300,654,866) (61,693,139)
- ------------------------------------------------------------------------------ ---------------- ---------------
Change in net assets from capital stock transactions 200,759,225 440,936,927
- ------------------------------------------------------------------------------ ---------------- ---------------
Change in net assets 150,422,829 494,585,751
- ------------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------------
Beginning of period 742,067,410 247,481,659
- ------------------------------------------------------------------------------ ---------------- ---------------
End of period (including undistributed net investment income of $24,046,071
and $15,024,531, respectively) $ 892,490,239 $ 742,067,410
- ------------------------------------------------------------------------------ ---------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FORTRESS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Fund is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end, load, management investment company.
(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 (GAAP).
A. INVESTMENT VALUATIONS--Listed equity securities, corporate bonds, and other
fixed income securities are valued at the last sales 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 at the time of
purchase 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 the value 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 adviser to be creditworthy pursuant to guidelines established
by the Board of Directors ("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").
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. Additionally, net
capital losses of $2,507,402 attributable to security transactions incurred
after October 31, 1993 are treated as arising on June 1, 1994, the first
day of the Fund's next taxable year.
During the year ended May 31, 1991, Federated Corporate Cash Trust was
merged into the Fund. As part of this transaction for federal tax purposes,
Federated Corporate Cash Trust succeeded to the Fund capital loss
carryforwards of $15,211,243 expiring in various years through 1998. The
Fund's ability to use these losses will be limited through the application
of the Code's change of ownership rules. The maximum amount of
carryforwards available to the Fund at May 31, 1994 is $2,109,940 which
will expire in 1998.
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. A 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. RECLASSIFICATIONS--During the current period, the Fund adopted Statement of
Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions
by Investment Companies. Accordingly, permanent book and tax differences
have been reclassified to paid-in-capital. As of June 1, 1994, the
cumulative effect of such differences, totaling $260,348, was reclassified
from undistributed net investment income and accumulated undistributed net
realized gain on investments to paid-in-capital. Net investment income, net
realized gains, and net assets were not affected by this change.
H. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1994, there were 2,000,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
<S> <C> <C>
----------------------------
<CAPTION>
1994 1993
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Shares sold 37,006,327 40,627,313
- -----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,579,370 839,320
- -----------------------------------------------------------------------------------
Shares redeemed (23,548,310) (5,097,558)
- ----------------------------------------------------------------------------------- ------------- -------------
Net change resulting from capital stock transactions 15,037,387 36,369,075
- ----------------------------------------------------------------------------------- ------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .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
with 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 any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
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 by shareholders.
SHAREHOLDER SERVICES PLAN--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and the maintenance of shareholder
accounts.
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
fiscal year ended May 31, 1994, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------
PURCHASES $ 456,731,484
- ------------------------------------------------------------------------------------------------- ---------------
SALES $ 245,589,053
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
FORTRESS UTILITY FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fortress Utility Fund, Inc., as of May 31, 1994
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended and
the financial highlights (see page 2 of the prospectus) for each of the eight
years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of May 31, 1994 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fortress Utility Fund, Inc., at May 31, 1994, the results of its operations for
the year then ended, and the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the eight
years in the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
July 8, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fortress Utility Fund, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh,
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FORTRESS UTILITY
FUND, INC.
PROSPECTUS
An Open-End, Diversified
Management Investment Company
July 31, 1994
349561100
9090505A (7/94)
FORTRESS UTILITY FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of the Fund dated July 31, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or call
Fortress Utility Fund, Inc. (the "Fund").
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
U.S. Government Securities 1
When-Issued and Delayed Delivery
Transactions 1
Lending of Portfolio Securities 1
Reverse Repurchase Agreements 1
Put and Call Options 1
Financial Futures and Options on Futures 2
Risks 2
Portfolio Turnover 2
CONCENTRATION OF INVESTMENTS 2
- ---------------------------------------------------------------
INVESTMENT LIMITATIONS 2
- ---------------------------------------------------------------
FUND MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Directors 5
The Funds 7
Fund Ownership 7
Director Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
Other Related Services 8
OTHER PAYMENT TO FINANCIAL INSTITUTIONS 8
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
SHAREHOLDER SERVICES PLAN 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Purchases by Sales Representatives, Fund
Directors, and Employees 9
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
Determining Value of Securities 9
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 10
EXCHANGING SECURITIES FOR FUND SHARES 10
- ---------------------------------------------------------------
Tax Consequences 10
EXCHANGE PRIVILEGE 10
- ---------------------------------------------------------------
Reduced Sales Load 10
Requirements for Exchange 10
Tax Consequences 11
Making an Exchange 11
By Telephone 11
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 11
- ---------------------------------------------------------------
YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
APPENDIX 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was established as a Massachusetts business trust on October 15, 1986
and reorganized as a Maryland corporation on May 30, 1990. The Fund's name prior
to the reorganization was Federated Utility Trust. It is qualified to do
business as a foreign corporation in Pennsylvania.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve high current income and moderate
capital appreciation by investing primarily in a professionally managed and
diversified portfolio of equity and debt securities of utility companies. The
investment objective cannot be changed without approval of shareholders.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government obligations which generally include
direct obligations of the U.S. Treasury (such as U.S. Treasury bills, notes, and
bonds) and obligations issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Land Banks;
Central Bank for Cooperatives;
Federal Intermediate Credit Banks;
Federal Home Loan Banks;
Farmers Home Administration; and
Federal National Mortgage Association.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled. The Fund may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of its assets.
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 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.
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 will only purchase puts on portfolio
securities which are traded on a recognized exchange.
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 call options which the Fund writes
must be listed on a recognized options exchange. Although the Fund reserves the
right to write covered call options on its entire portfolio, it will not write
such options on more than 25% of its total assets unless a higher limit is
authorized by its Directors.
FINANCIAL FUTURES AND OPTIONS ON FUTURES
The Fund may purchase and sell financial futures contracts to hedge all or a
portion of its portfolio of long-term debt securities against changes in
interest rates. Financial futures contracts call for the delivery of particular
debt instruments issued or guaranteed by the U.S. Treasury or by specified
agencies or instrumentalities of the U.S. government 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 cash equivalents, 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 contracts is unleveraged.
RISKS
When the Fund uses financial futures and options on financial futures as
hedging devices, there is a risk that the prices of the securities
subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the
futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as interest rate movements. In
these events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into futures and options
transactions, there is no assurance that a liquid secondary market on an
exchange 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.
PORTFOLIO TURNOVER
For the fiscal years ended May 31, 1994, and 1993 the portfolio turnover rates
were 28%, and 27%, respectively.
CONCENTRATION OF INVESTMENTS
- --------------------------------------------------------------------------------
As a fundamental policy, which cannot be changed without shareholder approval,
the Fund will invest at least 25% of its total assets in securities of utility
companies. The Fund will not invest less than 25% of its total assets in
securities of utility companies unless approved by shareholders.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities. However, the Fund may
purchase put options on portfolio securities and on financial futures
contracts. In addition, the Fund reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell calls
on financial futures contracts. The Fund will notify shareholders before
such a change in its operating policies is implemented.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
the securities of companies whose business involves the purchase or sale
of real estate or in securities which are secured by real estate or
interests in real estate.
BUYING ON MARGIN
The Fund will not purchase any securities on margin, other than in
connection with the purchase of put options on financial futures
contracts, but may obtain such short-term credits as may be necessary for
the clearance of transactions.
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 net 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 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 such borrowings are outstanding.
However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the purchase of
portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements.
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 objective and policies.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in certain
securities subject to restrictions on resale under federal securities
law.
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 objective, policies, and limitations.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of companies, including their predecessors, that have been in
operation for less than three years.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
DIVERSIFICATION OF INVESTMENT
The Fund will not purchase the securities of any issuer (other than the
U.S. government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements or
cash or cash items) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of such issuer, 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.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management. However, the Fund will acquire no more
than 10% of the voting securities of an issuer and may exercise its
voting power in the Fund's best interest. From time to time, the Fund,
together with other investment companies advised by affiliates or
subsidiaries of Federated Investors, may together buy and hold
substantial amounts of a company's voting stock. All such stock may be
voted together. In some cases, the Fund and the other investment
companies might collectively be considered to be in control of the
company in which they have invested. Officers or affiliates of the Fund
might possibly become directors of companies in which the Fund holds
stock.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants, not
more than 2% of which may be warrants not listed on the New York Stock
Exchange or the American Stock Exchange.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase shares of or otherwise invest in any other
investment companies.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
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.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the 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 does not intend to borrow money, invest in reverse repurchase
agreements, or sell securities short during the coming 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
of savings and loan having capital surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items." Cash items may
include obligations such as:
certificates of deposit (including those issued by domestic and foreign
branches of FDIC insured banks);
obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and
repurchase agreements.
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Federated Services Company, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST/FUND DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Director Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer
and Director, Trustee, or Managing General Partner of the Funds;
formerly, Director, The Standard Fire Insurance Company. Mr. Donahue
is the
father of J. Christopher Donahue, Vice President of the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in
John R. Wood and private real estate ventures in Southwest Florida; Director, Trustee,
Associates, Inc., Realtors or Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds;
23rd Floor formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Pittsburgh, PA Corp. and Director, Ryan Homes, Inc.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly,
Concord, MA Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds;
Boston, MA formerly, President, State Street Bank and Trust Company and State
Street Boston Corporation; Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Vice Chairman,
Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant; Trustee,
1202 Cathedral of Carnegie Endowment for International Peace, RAND Corporation, Online
Learning Computer Library Center, Inc., and U.S. Space Foundation; Chairman,
University of Pittsburgh Czecho Slovak Management Center; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; President Emeritus, University of
Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Glen R. Johnson* Director Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services.
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; President and Trustee,
Federated Investors Tower Federated Advisers, Federated Management, and Federated Inc.;
Pittsburgh, PA Trustee, Federated Services Company; President or Vice President of
the Funds; Director, Trustee, or Managing General Partner of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Fund.
Richard B. Fisher President Executive Vice President and Trustee, Federated Investors; Chairman
Federated Investors Tower and Director, Federated Securities Corp.; President or Vice President
Pittsburgh, PA of the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales* Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management,
Pittsburgh, PA and Federated Research; Executive Vice President, Treasurer, and
Director, Federated Securities Corp.; Trustee, Federated Services
Company; Chairman, Treasurer, and Director, Federated Administrative
Services; Trustee or Director of some of the Funds; Vice President
and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President, Secretary, and
Director, Federated Administrative Services; Director and Executive
Vice President, Federated Securities Corp.; Vice President and
Secretary of the Funds.
</TABLE>
* This Director is deemed to be an "interested person" of the Trust/Fund as
defined in the Investment Company Act of 1940.
\ Members 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.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series, Inc.; Cash Trust Series II; 111 Corcoran Funds; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Intermediate Municipal Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government Trust; Federated
Short-Intermediate Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; Peachtree Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Trademark Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of July 10, 1994, the following shareholder of record owned 5% or more of the
outstanding shares of the Fund:
Merrill Lynch, Pierce, Fenner & Smith, (as record owner holding shares for its
clients) Jacksonville, Florida owned approximately 19,107,767 shares (27%).
DIRECTOR LIABILITY
The Fund's Articles of Incorporation provide that the Directors will not be
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of 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. John F. Donahue, Chairman and Trustee of Federated
Management, is Chairman and Trustee of Federated Investors and Chairman and
Director of the Fund. J. Christopher Donahue is President and Trustee of
Federated Management, President and Trustee of Federated Investors, Trustee of
Federated Administrative Services, Trustee of Federated Services Company, and
Vice President of the Fund. John W. McGonigle, Trustee of Federated Management,
is Vice President, Secretary, General Counsel, and Trustee of Federated
Investors; Executive Vice President, Secretary, and Trustee of Federated
Administrative Services; Executive Vice President and Director of Federated
Securities Corp; and Vice President and Secretary of the Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended May
31, 1994, 1993, and 1992, the Fund's adviser earned $6,950,251, $3,387,794, and
$1,111,201, of which $1,097,659, $217,481, and $165,564 were voluntarily waived
in 1994, 1993, and 1992, respectively because of undertakings to limit the
Fund's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
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 2.5% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1.5% per year
of the remaining average net assets, the adviser will reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER RELATED SERVICES
Affiliates of the investment adviser may, from time to time, provide certain
electronic equipment and software to institutional customers in order to
facilitate the purchase of shares of funds offered by Federated Securities Corp.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS
- --------------------------------------------------------------------------------
For the fiscal years ended May 31, 1994, 1993, and 1992, the distributor paid
$1,297,367, $3,475,017, and $1,463,021, respectively to administrators for
distribution and administrative services. The administrative services include,
but are not limited to, providing office space, equipment, telephone facilities,
and various personnel, including clerical, supervisory, and computer, as is
necessary or beneficial to establish and maintain shareholders' accounts and
records, process purchase and redemption transactions, process automatic
investments of client account cash balances, answer routine client inquiries
regarding the Fund, assist clients in changing dividend options, account
designations, and addresses, and providing such other services as the Fund may
reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators".) For the
fiscal year ended May 31, 1994, the Administrators collectively earned
$1,008,365. For the fiscal years ended May 31, 1993, and 1992 Federated
Administrative Services, Inc., earned $571,029 and $290,108, respectively.
SHAREHOLDER SERVICES PLAN
- --------------------------------------------------------------------------------
This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to Financial Institutions 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, 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.
For the fiscal period ending May 31, 1994, payments in the amount of $1,849,650
were made pursuant to the Shareholder Services Plan.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
The investment adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Fund or to
the investment adviser and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The investment 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 the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
investment adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
For the fiscal years ended May 31, 1994, 1993, and 1992, the Fund paid $479,862,
$697,146, and $258,240, respectively, in brokerage commissions on brokerage
transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value plus a sales charge on days the New York Stock Exchange
is open for business. The procedure for purchasing shares of the Fund is
explained in the prospectus under "Investing in the Fund."
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund and Federated
Securities Corp. or their affiliates, or any investment dealer who has a sales
agreement with Federated Securities Corp., and their spouses and children under
21, may buy shares at net asset value without a sales charge. Shares may also be
sold without a sales charge to trusts or pension or profit-sharing plans for
these persons.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING VALUE OF SECURITIES
The market values of the Fund's portfolio securities are determined as follows:
for equity securities and bonds and other fixed income securities, according to
the last sale price on a national securities exchange, if available;
in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices, and for bonds and other fixed
income securities as determined by an independent pricing service;
for unlisted equity securities, the latest mean prices;
for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service or for short-term obligations
with remaining maturities of 60 days or less, at the time of purchase, at
amortized cost; or
for all other securities, at fair value as determined in good faith by the
Board of Directors.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank 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.
Certain shares redeemed within one to four years of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the administrator for services rendered, and the
length of time the investor remains a shareholder in the Fund. Should
administrators elect to receive an administrative fee that is less than that
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
The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Fund's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Directors deem fair and
equitable.
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.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
Investors may exchange certain securities they already own for Fund shares, or
they may exchange a combination of securities and cash for Fund shares. An
investor should forward the securities in negotiable form with an authorized
letter of transmittal to Federated Securities Corp. The Fund will notify the
investor of its acceptance and valuation of the securities within five business
days of their receipt by State Street Bank.
Securities eligible for exchange are limited to those securities which meet the
investment objective and policies of the Fund; are acquired for investment and
not for resale; are not restricted; and have a value which is readily
ascertainable (and not established only by evaluation procedures) as evidenced
by a listing on the American Stock Exchange, the New York Stock Exchange, or
NASDAQ.
The basis of the exchange will depend upon the net asset value of Fund shares on
the day the securities are valued. One share of the Fund 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, 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 Fund
shares, a gain or loss may be realized by the investor.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has issued an order exempting the Fund
from certain provisions of the Investment Company Act of 1940, as amended. As a
result, Fund shareholders are allowed to exchange all or some of their shares
for shares in other Fortress Funds or certain Federated Funds which are sold
with a sales load different from that of the Fund's or with no sales load and
which are advised by subsidiaries or affiliates of Federated Investors. These
exchanges are made at net asset value plus the difference between the Fund's
sales load already paid and any sales load of the fund into which the shares are
to be exchanged, if higher.
The order also allows certain other funds, including funds that are not advised
by subsidiaries or affiliates of Federated Investors, which do not have a sales
load to exchange their shares for Fund shares on a basis other than their
current offering price. These exchanges may be made to the extent that such
shares were acquired in a prior exchange, at net asset value, for shares of a
Federated Fund carrying a sales load.
REDUCED SALES CHARGE
If a shareholder making an exchange qualifies for a reduction or elimination of
the sales load, the shareholder must notify Federated Securities Corp. or State
Street Bank in writing.
REQUIREMENTS FOR EXCHANGE
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. 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 residing in any state in which the fund shares being
acquired may be sold. Upon receipt of proper instructions and required
supporting documents, shares submitted for exchange are redeemed and the
proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for Fortress
Funds or certain Federated Funds are available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a gain or loss may be realized by
the investor.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain Federated Funds must be
given in writing by the shareholder. Written instruction 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.
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:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. These dividends, and any short-term
capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total returns for the one-year and five-year periods
ended May 31, 1994 and for the period from January 30, 1987 (effective date of
the Fund's registration statement) to May 31, 1994, were (1.95)%, 11.52%, and
9.25%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales load, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions. Any applicable contingent deferred sales charge
is deducted from the ending value of the investment based on the lesser of the
original purchase price or the net asset value of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended May 31, 1994 was 5.18%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund 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 12 month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund 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 the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in Fund expenses; and
various other factors.
The Fund 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.
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 the 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:
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 "utility funds"
category in advertising and sales literature.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected blue
chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA is
a leading economic indicator for the stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, financial, and public
utility companies, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's index
assumes reinvestment of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or other
fees calculated in Standard & Poor's figures.
STANDARD & POOR'S UTILITY INDEX is an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price of
the stocks. The index also provides figures for changes in price from the
beginning of the year to date, and for a twelve month period.
DOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
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.
Advertisements and other sales literature for the Fund may quote total returns,
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION, ("S&P") CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reversed for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment 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 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 a 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 to a
large 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.
349561100
9090505B (7/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A)
(b) Exhibits:
(1) Copy of Articles of Incorporation of the
Registrant (4.);
(2) Copy of By-Laws of the Registrant (5.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant (5.);
(5) Copy of Investment Advisory Contract of the
Registrant (5.);
(6) Copy of Distributor's Contract of the
Registrant (5.);
(7) Not applicable;
(8) Copy of Custodian Agreement of the
Registrant; +
(9) (i) Conformed Copy of Former Shareholder
Services Plan dated March 01, 1993;+
(ii) Conformed Copy of Current Shareholder
Services Plan dated March 01, 1994;+
(iii)Conformed Copy of Agency Agreement of
the Registrant;+
(iv) Copy of Shareholder Services Sub-
contract;+
(v) Conformed Copy of Shareholder Services
Agreement;+
(vi) Conformed Copy of Administrative
Services Agreement;+
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered (2);
(11) Copy of Consent of Independent Public
Accountants;+
(12) Not applicable;
(13) Copy of Initial Capital Understanding (2);
(14) Not Applicable;
(15) Not applicable;
(16) Schedule for Computation of Fund Performance
Data (3.);
(17) Power of Attorney (6);
(18) Opinion and Consent of Counsel as to
Availability of Rule 485(b);+
Item 25. Persons Controlled by or Under Common Control with
Registrant: (1)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of July 01, 1994
Shares of capital stock 34,603
($0.001 per Share par value)
Item 27. Indemnification: (1)
_______________
1. Response is incorporated by reference to Registrant's
Initial Registration Statement on form N-1A filed
electronically November 17, 1986. (File No. 33-10209)
2. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 1 on Form N-1A filed July 23, 1987.
(File No. 33-10209)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 2 on Form N-1A filed July 26, 1988.
(File No. 33-10209)
4. Response is incorporated by reference to Registrant's Post
Effective Amendment No. 4 on form N-1A filed May 25, 1990
(File No. 33-10209)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 5 on form N-1A filed on July 26,
1990. (File No. 33-10209)
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 7 on form N-1A filed on July 24,
1992. (File No. 33-10209)
+ All exhibits have been filed electronically.
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 B of this Registration
Statement under "Fund Management - 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, Wilson, Holbrook and Bayard), 107
W. Market Street, Georgetown, Delaware 19447.
The remaining Officers of the investment adviser are:
William D. Dawson, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot,
Senior Vice President-Economist; Peter R. Anderson,
Gary J. Madich, and J. Alan Minteer, Senior Vice
Presidents; Randall A. Bauer, Jonathan C. Conley,
Deborah A. Cunningham, Mark E. Durbiano, Roger A.
Early, Kathleen M. Foody-Malus, Thomas M. Franks,
Edward C. Gonzales, Jeff A. Kozemchak, Marian R.
Marinack, John W. McGonigle, Gregory M. Melvin, Susan
M. Nason, Mary Jo Ochson, Robert J. Ostrowski, Charles
A. Ritter, and Christopher H. Wiles, Vice Presidents;
Edward C. Gonzales, Treasurer, and John W. McGonigle,
Secretary. The business address of each of the
Officers of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These
individuals are also officers of a majority of the
investment advisers to the Funds listed in Part B of
this Registration Statement under "The Funds."
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the
Distributor for shares of the Registrant, also
acts as principal underwriter for the following
open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity
Management Series; Automated Cash Management
Trust; Automated Government Money Trust; BayFunds;
The Biltmore Funds; The Biltmore Municipal Funds;
The Boulevard Funds; California Municipal Cash
Trust; Cambridge Series Trust; Cash Trust Series,
Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government
Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust;
Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust;
Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; First
Priority Funds; First Union Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fountain
Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds;
Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty
Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund,
Inc.; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Mark Twain Funds; Marshall
Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust;
New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds;
SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual
Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision
Fiduciary Funds, Inc.; Vision Group of Funds,
Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end
investment company: Liberty Term Trust, Inc.-
1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President and
Federated Investors Tower President, and Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President --
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30 Location of Accounts and Records. All accounts and
records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at
one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Federated Services Company, Federated Investors Tower
Transfer Agent and Dividend Pittsburgh, Pennsylvania 15222-3779
Disbursing Agent
Federated Administrative Federated Investors Tower
Services, Pittsburgh, Pennsylvania 15222-3779
Administrator
Federated Management, Federated Investors Tower
Adviser Pittsburgh, Pennsylvania 15222-3779
State Street Bank and Post Office Box 8604
Trust Company, Boston, Massachusetts 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, FORTRESS
UTILITY FUND, INC., has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of
July, 1994.
FORTRESS UTILITY FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
July 25, 1994
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact July 25, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg SK
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Independent Auditors" and to the use of our report dated July
25, 1994, in Post-Effective Amendment Number 9 to the
Registration Statement (Form N-1A Number 33-10209) of FORTRESS
UTILITY FUND, INC. dated July 25, 1994.
By: ERNST & YOUNG
Ernst & Young
Boston, Massachusetts
July 25, 1994
Exhibit 18 under Form N1-A
Exhibit 99 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.__________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
July 25, 1994
Fortress Utility Fund, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Fortress Utility Fund, Inc. ("Fund") we have
reviewed Post-effective Amendment No. 9 to the Fund's
Registration Statement to be filed with the Securities and
Exchange Commission under the Securities Act of 1933 (File No. 33-
10209). The subject Post-effective Amendment will be filed
pursuant to Paragraph (b) of Rule 485 and become effective
pursuant to said Rule on July 31, 1994.
Our review also included an examination of other relevant
portions of the amended 1933 Act Registration Statement of the
Fund and such other documents and records deemed appropriate. On
the basis of this review we are of the opinion that Post-
effective Amendment No. 9 does not contain disclosures which
would render it ineligible to become effective pursuant to
Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation
letter as a part of the Fund's Registration Statement filed with
the Securities and Exchange Commission under the Securities Act
of 1933 and as part of any application or registration statement
filed under the Securities Laws of the States of the United
States.
Very truly yours,
Houston, Houston & Donnelly
By:/s/ Thomas J. Donnelly
TJD:smg
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FORTRESS UTILITY FUND, INC.
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted
as of this 1st day of March, 1993, by the Board of
Directors of Fortress Utility Fund, Inc. (the "Fund"), a
Maryland corporation with respect to certain classes of
shares ("Classes") of the portfolios of the Corporation set
forth in exhibits hereto.
1. This Plan is adopted to allow the Fund to
make payments as contemplated herein to obtain certain
personal services for shareholders and/or the maintenance of
shareholder accounts ("Services").
2. This Plan is designed to compensate
broker/dealers and other participating financial
institutions and other persons ("Providers") for providing
services to the Fund and its shareholders. The Plan will be
administered by Federated Administrative Services, Inc.
("FAS"). In compensation for the services provided pursuant
to this Plan, Providers will be paid a monthly fee computed
at the annual rate not to exceed .25 of 1% of the average
aggregate net asset value of the shares of the Fund held
during the month.
3. Any payments made by the Portfolios to any
Provider pursuant to this Plan will be made pursuant to the
"Shareholder Services Agreement" entered into by FAS on
behalf of the Fund and the Provider. Providers which have
previously entered into "Administrative Agreements" or "Rule
12b-1 Agreements" with Federated Securities Corp. may be
compensated under this Plan for Services performed pursuant
to those Agreements until the Providers have executed a
"Shareholder Services Agreement" hereunder.
4. The Fund has the right (i) to select, in its
sole discretion, the Providers to participate in the Plan
and (ii) to terminate without cause and in its sole
discretion any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains
in effect, FAS shall prepare and furnish to the Board of
Directors of the Fund, and the Board of Directors shall
review, a written report of the amounts expended under the
Plan.
6. This Plan shall become effective (i) after
approval by majority votes of: (a) the Fund's Board of
Directors; and (b) the members of the Board of the
Corporation who are not interested persons of the
Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect
to each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the Fund and
of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on it.
9. This Plan may be terminated at any time by:
(a) a majority vote of the Disinterested Directors; or (b) a
vote of a majority of the outstanding voting securities of
the Fund as defined in Section 2(a)(42) of the Act.
10. While this Plan shall be in effect, the
selection and nomination of Disinterested Directors of the
Fund shall be committed to the discretion of the
Disinterested Directors then in office.
11. All agreements with any person relating
to the implementation of this Plan shall be in writing and
any agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 9 herein.
12. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth
of Pennsylvania.
Witness the due execution hereof this 1st day of
March, 1993.
FORTRESS UTILITY FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT A
to the
Shareholder Services Plan
Fortress Utility Fund, Inc.
This Plan is adopted by Fortress Utility Fund,
Inc. with respect to the Class of Shares of the Corporation
set forth above.
In compensation for the services provided pursuant
to this Plan, Providers will be paid a monthly fee computed
at the annual rate of .25 of 1% of the average aggregate net
asset value of the Shares of the Corporation held during the
month.
Witness the due execution hereof this 1st day of
March, 1993.
Fortress Utility Fund, Inc.
By:/s/ Richard B. Fisher
President
Exhibit 8 under Form N1-A
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 It1
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
2.17Communications 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
2.21Notice 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 a
nd 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 Fu
nds Held by the Custodian
2.1Holding Securities. The Custodian shall hold and phys
ically 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.
2.2Delivery of Securities. The Custodian shall release a
nd 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 Securitie
s 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 secur
ities 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 o
f 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 securit
ies, 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 port
folio 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 b
orrowings 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 ag
ent ("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 C
ustodian (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.
2.5Payments for Shares. The Custodian shall make such ar
rangements 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.
2.6Availability 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 when
ever 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.
2.8Payment of Fund Moneys. Upon receipt of Proper Instru
ctions, 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 surrend
er of securities owned by a Fund as set forth in
Section 2.2 hereof;
(3)For the redemption or repurchase of Shares of a Fu
nd issued by the Trust as set forth in Section
2.10 hereof;
(4)For the payment of any expense or liability incurr
ed 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 Fu
nd 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 receip
t 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.
2.9Liability for Payment in Advance of Receipt of Securit
ies 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 Cus
todian 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 Pro
per 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 Custodi
an 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 se
curities 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 thr
oughout 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 Cus
todian may in its discretion, without express
authority from the Trust:
(1)make payments to itself or others for minor expens
es 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 securit
ies in definitive form;
(3)endorse for collection, in the name of a Fund, che
cks, drafts and other negotiable instruments; and
(4)in general, attend to all non-discretionary detail
s 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 protec
ted 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 a
nd Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary info
rmation 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 (Except those
listed below)
/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 COMPANIY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
FORTRESS UTILITY FUND, INC.
Exhibit 9 under Form N1-A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund" and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the
Company is willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer
agent, dividend disbursing agent, and agent in connection with certain
other activities, and the Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks and the Company desires to accept such
appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds and determine the net asset value per
share of each Fund and/or Class, at the time and in the manner from
time to time determined by the Board and as set forth in the
Prospectus and Statement of Additional Information ("Prospectus")
of each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
E. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to surrender
promptly to the Trust such records upon the Trust's request;
F. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other applicable
laws and regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees set forth on Fee Schedules A ("A1, A2, A3 etc..."), annexed
hereto and incorporated herein, as may be added or amended from
time to time. Such fees do not include out-of-pocket disbursements
of the Company for which the Funds shall reimburse the Company upon
receipt of a separate invoice. Out-of-pocket disbursements shall
include, but shall not be limited to, the items specified in
Schedules B ("B1, B2, B3, etc..."), annexed hereto and incorporated
herein, as may be added or amended from time to time. Schedules B
may be modified by the Company upon not less than thirty days'
prior written notice to the Trust.
B. The Fund and/or the Class, and not the Company, shall bear the cost
of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes
and fees payable to federal, state and other governmental agencies;
fees of Trustees or Directors of the Trust; independent auditors
expenses; Federated Administrative Services and/or Federated
Administrative Services, Inc. legal and audit department expenses
billed to Federated Services Company for work performed related to
the Trust, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly
payable by the Funds and/or classes.
C. The Company will send an invoice to each of the Funds as soon as
practicable after the end of each month. Each invoice will provide
detailed information about the compensation and out-of-pocket
expenses in accordance with Schedules A and Schedules B. The Funds
and or the Classes will pay to the Company the amount of such
invoice within 30 days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedules A revised Schedules dated and signed
by a duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall be
computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they may
be officers and employees who are employed by both the Company and
the Funds. The compensation of such person or persons shall be
paid by the Company and no obligation shall be incurred on behalf
of the Trust, the Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase
of shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and
hold such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate
to the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile
the amounts so requested and the amounts actually received
with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to
the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company
by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the Company
shall pay or cause to be paid the redemption proceeds in the
manner instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the reason
therefor, and shall effect such redemption at the price
applicable to the date and time of receipt of documents
complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the
Fund on a regular basis or upon reasonable request with the
total number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall
forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and documents
created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in
performance of its services or for its protection. If not so
turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of
creation, during the first two of which such documents will be
in readily accessible form. At the end of the six year
period, such records and documents will either be turned over
to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required to
be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state
income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, agent
in connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program),
including but not limited to: maintaining all
Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes
on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and
filing reports on U.S. Treasury Department Form 1099 and
other appropriate forms required with respect to
dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class sold
in each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized
by the Trust and shall bear the seal of the Trust or facsimile
thereof; and notwithstanding the death, resignation or removal of
any officer of the Trust authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as set out in
Schedules C ("C1, C2, C3 etc..."), attached hereto, as may be added
or amended from time to time. Such fees may be changed from time
to time subject to written agreement between the Trust and the
Company. Pursuant to information in the Fund Prospectus or other
information or instructions from the Fund, the Company may sub-
divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the fees
set forth on Schedule C for each such Class or sub-component the
same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items set out
in Schedules D ("D1, D2, D3 etc..."), attached hereto, as may be
added or amended from time to time. In addition, any other
expenses incurred by the Company at the request or with the consent
of the Trust and/or the Fund, will be reimbursed by the appropriate
Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket
expenses in accordance with Schedules C and Schedules D. The Trust
or the Funds will pay to the Company the amount of such invoice
within 30 days following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of
the other party.
(1) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
(2) The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17A(c)(1)
of the Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS
subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other
provider of services duly registered as a transfer agent under
Section 17A(c)(1) as Company shall select; provided, however,
that the Company shall be as fully responsible to the Trust
for the acts and omissions of any subcontractor as it is for
its own acts and omissions; or
(3) The Company shall upon instruction from the Trust subcontract
for the performance hereof with an Agent selected by the
Trust, other than BFDS or a provider of services selected by
Company, as described in (2) above; provided, however, that
the Company shall in no way be responsible to the Trust for
the acts and omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets
the criteria established in Section 17(f) of the 1940 Act and (ii)
has been approved by the Board as eligible for selection by the
Company as a custodian (the "Eligible Custodian"). The Company
accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
(1) evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of the Trust
as Custodian of the Trust's assets substantially on the terms
set forth as the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
(4) establish procedures to monitor the nature and the quality of
the services provided by the Custodians;
(5) continuously monitor the nature and the quality of services
provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with
respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable it
to fulfill its duties and obligations under Sections 17(f) and
36(b) of the 1940 Act and other duties and obligations
thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the Company
an annual fee as set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket
expenses in occurrence with Schedule E. The Trust and/or Fund will
pay to the Company the amount of such invoice within 30 days
following the receipt of the invoice.
Article 12. Representations.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the
services contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board of
the Trust with a certificate of the Secretary of the Trust as
to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement, and
shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such
forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or appropriate
in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of
each Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Trust's or
The Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any
representation or warranty of the Trust or Fund hereunder or
otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of the
Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information; or
(b) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the Trust
or the Fund.
(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop order
or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to any action or failure or omission to act
by the Company as a result of the Company's willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with respect
to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior
written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be borne
by the Trust or the appropriate Fund. Additionally, the Company
reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 15
shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor
of this Agreement. Any such interpretive or additional provisions
shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any
provision of the Charter. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Trust or
the Company may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of
the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose
any liability on any of them personally, and the obligations of
this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property
of the Fund, or Class, as provided in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Company and signed by an authorized officer
of the Company, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally, and the obligations
of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the property of the
Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to
such successor agent at the office of the Company all properties of
the Trust held by it hereunder. If no such successor agent shall
be appointed, the Company shall at its office upon receipt of
Proper Instructions deliver such properties in accordance with such
instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before the date when such termination shall become effective, then
the Company shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the 1940 Act, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this
Agreement. Thereafter, such bank or trust company shall be the
successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a
result of work stoppage, power or other mechanical failure, natural
disaster, governmental action, communication disruption or other
impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either party
may assign to a successor all of or a substantial portion of its
business, or to a party controlling, controlled by, or under common
control with such party. Nothing in this Article 28 shall prevent
the Company from delegating its responsibilities to another entity
to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void
or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
Fortress Utility Fund, Inc.
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as
of this 1st day of March, 1994, by the Boards of Directors
or Trustees, as applicable (the "Boards"), of those
investment companies listed on Exhibit 1 hereto as may be
amended from time to time, having their principal office and
place of business at Federated Investors Tower, Pittsburgh,
PA 15222-3779 (individually referred to herein as a "Fund"
and collectively as "Funds").
1. This Plan is adopted to allow the Funds to
make payments as contemplated herein to obtain certain
personal services for shareholders and/or the maintenance of
shareholder accounts ("Services").
2. This Plan is designed to compensate Federated
Shareholder Services ("FSS") for providing personal services
and/or the maintenance of shareholder accounts to the Funds
and their shareholders. In compensation for the services
provided pursuant to this Plan, FSS may be paid a monthly
fee computed at the annual rate not to exceed .25 of 1% of
the average aggregate net asset value of the shares of each
Fund held during the month.
3. Any payments made by the Funds to FSS
pursuant to this Plan will be made pursuant to a
"Shareholder Services Agreement" between FSS and each of the
Funds.
4. Quarterly in each year that this Plan remains
in effect, FSS shall prepare and furnish to the Boards of
the Funds, and the Boards shall review, a written report of
the amounts expended under the Plan.
5. This Plan shall become effective with regard
to each Fund (i) after approval by majority votes of: (a)
such Fund's Board; and (b) the members of the Board of such
Fund who are not interested persons of such Fund and have no
direct or indirect financial interest in the operation of
such Fund's Plan or in any related documents to the Plan
("Independent Trustees or Directors"), cast in person at a
meeting called for the purpose of voting on the Plan.
6. This Plan shall remain in effect with respect
to each Fund presently set forth on an exhibit and any
subsequent Fund added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Fund at least
annually by a majority of the relevant Fund's Board and a
majority of the Independent Trustees or
Directors, of such Fund as applicable, cast in person at a
meeting called for the purpose of voting on the renewal of
such Plan. If this Plan is adopted with respect to a fund
after the first annual approval by the Trustees or Directors
as described above, this Plan will be effective as to that
Fund at such time as Exhibit 1 hereto is amended to add such
Fund and will continue in effect until the next annual
approval of this Plan by the Funds' Boards and thereafter
for successive periods of one year subject to approval as
described above.
7. All material amendments to this Plan must be
approved by a vote of the Board of each Fund and of the
Independent Directors or Trustees of such Fund, cast in
person at a meeting called for such purpose.
8. This Plan may be terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the Independent
Board Members of any Fund or by a vote of a majority
of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to
this Agreement; or
(b) by any party to the Agreement without cause
by giving the other party at least sixty (60) days'
written notice of its intention to terminate.
9. While this Plan shall be in effect, the
selection and nomination of Independent Directors or
Trustees of each Fund shall be committed to the discretion
of the Independent Directors or Trustees then in office.
10. All agreements with any person relating
to the implementation of this Plan shall be in writing and
any agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 8 herein.
11. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth
of Pennsylvania.
Witness the due execution hereof this as of the
date set forth above.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
FORTRESS UTILITY FUND, INC.
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this
first day of March, 1994, 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 (individually
referred to herein as "Fund" and collectively referred to as
"Funds), on behalf of the portfolios of the Funds, and Federated
Administrative Services, a Delaware business trust (herein
called "FAS").
WHEREAS, the Funds desire to retain FAS as their
Administrator to provide them with Administrative Services (as
herein defined), and FAS is willing to render such services;
WHEREAS, the Funds are registered as open-end management
investment companies 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
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Funds hereby
appoint FAS as Administrator of the Funds on the terms and
conditions set forth in this Agreement; and FAS hereby accepts
such appointment and agrees to perform the services and duties
set forth in Section 2 of this Agreement in consideration of the
compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to
the supervision and control of the Funds' Boards of Trustees or
Directors, as applicable (the "Boards"), FAS will provide
facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and
affairs of the Funds and each of their portfolios:
(a) prepare, file, and maintain the
Funds' governing documents and any amendments
thereto, including the Declaration of Trust or
Articles of Incorporation, as appropriate,(which has
already been prepared and filed), the By-laws and
minutes of meetings of their Boards, Committees, and
shareholders;
(b) prepare and file with the
Securities and Exchange Commission and the
appropriate state securities authorities the
registration statements for the Funds and the Funds'
shares and all amendments thereto, reports to
regulatory authorities and shareholders,
prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Funds
to make continuous offerings of their shares, as
applicable;
(c) prepare, negotiate, and
administer contracts on behalf of the Funds with,
among others, each Fund's investment adviser,
distributor, custodian, and transfer agent, subject
to any applicable restrictions of the Boards or the
1940 Act;
(d) supervise the Funds' custodians
in the maintenance of the Funds' general ledgers and
in the preparation of the Funds' financial
statements, including oversight of expense accruals
and payments, the determination of the net asset
value of the Funds and the declaration and payment of
dividends and other distributions to shareholders;
(e) calculate performance data of
the Funds for dissemination to information services
covering the investment company industry;
(f) prepare and file the Funds' tax
returns;
(g) examine and review the
operations of the Funds' custodians and transfer
agents;
(h) coordinate the layout and
printing of publicly disseminated prospectuses and
reports;
(i) perform internal audit
examinations in accordance with a charter to be
adopted by FAS and the Funds;
(j) assist with the design,
development, and operation of the Funds;
(k) provide individuals reasonably
acceptable to the Funds' Boards for nomination,
appointment, or election as officers of the Funds,
who will be responsible for the management of certain
of the Funds' affairs as determined by the Funds'
Boards; and
(l) consult with the Funds and their
Boards of Trustees or Directors, as appropriate, on
matters concerning the Funds and their affairs.
The foregoing, along with any additional services that FAS
shall agree in writing to perform for the Funds hereunder, shall
hereafter be referred to as "Administrative Services."
Administrative Services shall not include any duties, functions,
or services to be performed for any Fund by such Fund's
investment adviser, distributor, custodian, transfer agent, or
shareholder service agent, pursuant to their respective
agreements with such Fund.
3. Expenses. FAS shall be responsible for expenses
incurred in providing office space, equipment, and personnel as
may be necessary or convenient to provide the Administrative
Services to the Fund, including the compensation of FAS
employees who serve on the Funds' Boards, or as officers of the
Funds. Each Fund shall be responsible for all other expenses
incurred by FAS on behalf of such Fund, including without
limitation postage and courier expenses, printing expenses,
travel expenses, registration fees, filing fees, fees of outside
counsel and independent auditors, insurance premiums, fees
payable to members of such Fund's Board who are not FAS
employees, and trade association dues.
4. Compensation. For the Administrative Services
provided, each Fund hereby agrees to pay and FAS hereby agrees
to accept as full compensation for its services rendered
hereunder an administrative fee at an annual rate, payable
daily, as specified below, based upon the total assets of all of
the Funds:
Maximum Administrative Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
However, in no event shall the administrative fee received
during any year of this Agreement be less than, or be paid at a
rate less than would aggregate, $125,000, per individual Fund,
with an additional $30,000 for each class of shares added to any
such Fund after the date hereof.
5. Standard of Care.
(a) FAS shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by any Fund in connection with the matters
to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of
its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FAS
shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for such Fund) on all
matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer,
trustee, partner, employee or agent of FAS, who may
be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any
business of such Fund (other than services or
business in connection with the duties of FAS
hereunder) to be rendering such services to or acting
solely for such Fund and not as an officer, trustee,
partner, employee or agent or one under the control
or direction of FAS even though paid by FAS.
(b) This Section 5 shall survive
termination of this Agreement.
6. Duration and Termination. The initial term of this
Agreement with respect to each Fund shall commence on the date
hereof, and extend for a period of one year, renewable annually
by the approval of the Board of Directors/Trustees of each Fund.
7. Amendment. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which an
enforcement of the change, waiver, discharge or termination is
sought.
8. Limitations of Liability of Trustees or Officers,
Employees, Agents and Shareholders of the Funds. FAS is
expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust of each Fund that is a
Massachusetts business trust and agrees that the obligations
assumed by each such Fund pursuant to this Agreement shall be
limited in any case to such Fund and its assets and that FAS
shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or
Agents of such Fund, or any of them.
9. Limitations of Liability of Trustees and Shareholders
of FAS. The execution and delivery of this Agreement have been
authorized by the Trustees of FAS and signed by an authorized
officer of FAS, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FAS, but bind only the trust
property of FAS as provided in the Declaration of Trust of FAS.
10. Notices. Notices of any kind to be given hereunder
shall be in writing (including facsimile communication) and
shall be duly given if delivered to any Fund at the following
address: Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President and if delivered to FAS at Federated
Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. Miscellaneous. 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. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement
shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the
provisions of Section 5, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein shall
be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. Counterparts. This Agreement may be executed by
different parties on separate counterparts, each of which, when
so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
13. Assignment; Successors. This Agreement shall not be
assigned by any party without the prior written consent of FAS,
in the case of assignment by any Fund, or of the Funds, in the
case of assignment by FAS, except that any party may assign to a
successor all of or a substantial portion of its business to a
party controlling, controlled by, or under common control with
such party. Nothing in this Section 14 shall prevent FAS from
delegating its responsibilities to another entity to the extent
provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
Investment Companies (listed on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Administrative Services
By: /s/ Edward C. Gonzales
Edward C. Gonzales
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
FORTRESS UTILITY FUND, INC.
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the first day of March, 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 and who have approved a
Shareholder Services Plan (the "Plan") and this form of
Agreement (individually referred to herein as a "Fund" and
collectively as "Funds") and Federated Shareholder Services,
a Delaware business trust, having its principal office and
place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to
be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby
appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby
accepts such appointments. FSS agrees to provide or cause
to be provided Services which, in its best judgment (subject
to supervision and control of the Funds' Boards of Trustees
or Directors, as applicable), are necessary or desirable for
shareholders of the Funds. FSS further agrees to provide
the Funds, upon request, a written description of the
Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will
pay FSS and FSS agrees to accept as full compensation for
its services rendered hereunder a fee at an annual rate,
calculated daily and payable monthly, up to 0.25% of 1% of
average net assets of each Fund.
For the payment period in which this Agreement becomes
effective or terminates with respect to any Fund, there
shall be an appropriate proration of the monthly fee on the
basis of the number of days that this Agreement is in effect
with respect to such Fund during the month. To enable the
Funds to comply with an applicable exemptive order, FSS
represents that the fees received pursuant to this Agreement
will be disclosed to and authorized by any person or entity
receiving Services, and will not result in an excessive fee
to FSS.
3. This Agreement shall continue in effect for one
year from the date of its execution, and thereafter for
successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of
the Fund who are not interested persons of the Fund and have
no direct or indirect financial interest in the operation of
the Funds' Plan or in any related documents to the Plan
("Independent Board Members") cast in person at a meeting
called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the Independent
Board Members of any Fund or by a vote of a majority
of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to
this Agreement;
(b) automatically in the event of the
Agreement's assignment as defined in the Investment
Company Act of 1940; and
(c) by any party to the Agreement without cause
by giving the other party at least sixty (60) days'
written notice of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification
number certification from each shareholder of the Funds to
which it provides Services that is required under Section
3406 of the Internal Revenue Code, and any applicable
Treasury regulations, and to provide each Fund or its
designee with timely written notice of any failure to obtain
such taxpayer identification number certification in order
to enable the implementation of any required backup
withholding.
6. FSS shall not be liable for any error of judgment
or mistake of law or for any loss suffered by any Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations
and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be
counsel for such Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FSS, who may
be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of
such Fund (other than services or business in connection
with the duties of FSS hereunder) to be rendering such
services to or acting solely for such Fund and not as an
officer, trustee, partner, employee or agent or one under
the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this
Agreement.
7. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which an
enforcement of the change, waiver, discharge or termination
is sought.
8. FSS is expressly put on notice of the limitation
of liability as set forth in the Declaration of Trust of
each Fund that is a Massachusetts business trust and agrees
that the obligations assumed by each such Fund pursuant to
this Agreement shall be limited in any case to such Fund and
its assets and that FSS shall not seek satisfaction of any
such obligations from the shareholders of such Fund, the
Trustees, Officers, Employees or Agents of such Fund, or any
of them.
9. The execution and delivery of this Agreement have
been authorized by the Trustees of FSS and signed by an
authorized officer of FSS, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on
any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be
in writing (including facsimile communication) and shall be
duly given if delivered to any Fund and to such Fund at the
following address: Federated Investors Tower, Pittsburgh,
PA 15222-3779, Attention: President and if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA 15222-
3779, Attention: President.
11. 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. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of
Sections 3 and 4, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different
parties on separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
13. This Agreement shall not be assigned by any party
without the prior written consent of FSS in the case of
assignment by any Fund, or of the Funds in the case of
assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to
a party controlling, controlled by, or under common control
with such party. Nothing in this Section 14 shall prevent
FSS from delegating its responsibilities to another entity
to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below
as of the day and year first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
FORTRESS UTILITY FUND, INC.
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES SUB-CONTRACT
This Agreement is made between the Financial
Institution executing this Agreement ("Provider") and
Federated Shareholder Services ("FSS") on behalf of the
investment companies listed in Exhibit A hereto (the
"Funds"), for whom FSS administers the Shareholder Services
Plan ("Plan") and who have approved this form of Agreement.
In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties
hereto as follows:
1. FSS hereby appoints Provider to render or cause to
be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). Provider agrees to provide Services
which, in its best judgment, are necessary or desirable for
its customers who are investors in the Funds. Provider
further agrees to provide FSS, upon request, a written
description of the Services which Provider is providing
hereunder.
2. During the term of this Agreement, the Funds will
pay the Provider fees as set forth in a written schedule
delivered to the Provider pursuant to this Agreement. The
fee schedule for Provider may be changed by FSS sending a
new fee schedule to Provider pursuant to Paragraph 9 of this
Agreement. For the payment period in which this Agreement
becomes effective or terminates, there shall be an
appropriate proration of the fee on the basis of the number
of days that this Agreement is in effect during the quarter.
To enable the Funds to comply with an applicable exemptive
order, Provider represents that the fees received pursuant
to this Agreement will be disclosed to its customers, will
be authorized by its customers, and will not result in an
excessive fee to the Provider.
3. The Provider understands that the Department of
Labor views ERISA as prohibiting fiduciaries of
discretionary ERISA assets from receiving shareholder
service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To
date, the Department of Labor has not issued any exemptive
order or advisory opinion that would exempt fiduciaries from
this interpretation. Without specific authorization from
the Department of Labor, fiduciaries should carefully avoid
investing discretionary assets in any fund pursuant to an
arrangement where the fiduciary is to be compensated by the
fund for such investment. Receipt of such compensation
could violate ERISA provisions against fiduciary self-
dealing and conflict of interest and could subject the
fiduciary to substantial penalties.
4. The Provider agrees not to solicit or cause to be
solicited directly, or indirectly at any time in the future,
any proxies from the shareholders of a Fund in opposition to
proxies solicited by management of the Fund, unless a court
of competent jurisdiction shall have determined that the
conduct of a majority of the Board of Trustees or Directors
of the Fund constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
This paragraph 4 will survive the term of this Agreement.
5. This Agreement shall continue in effect for one
year from the date of its execution, and thereafter for
successive periods of one year if the form of this Agreement
is approved at least annually by the Board of each Fund,
including a majority of the members of the Board of the Fund
who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of
the Fund's Plan or in any related documents to the Plan
("Disinterested Board Members") cast in person at a meeting
called for that purpose.
6. Notwithstanding paragraph 5, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the
Disinterested Board Members of the Fund or by a vote
of a majority of the outstanding voting securities of
the Fund as defined in the Investment Company Act of
1940 on not more than sixty (60) days' written notice
to the parties to this Agreement;
(b) automatically in the event of the
Agreement's assignment as defined in the Investment
Company Act of 1940; and
(c) by either party to the Agreement without
cause by giving the other party at least sixty (60)
days' written notice of its intention to terminate.
7. The Provider agrees to obtain any taxpayer
identification number certification from its customers
required under Section 3406 of the Internal Revenue Code,
and any applicable Treasury regulations, and to provide the
Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number
certification in order to enable the implementation of any
required backup withholding.
8. The execution and delivery of this Agreement have
been authorized by the Trustees of FSS and signed by an
authorized officer of FSS, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on
any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
9. Notices of any kind to be given hereunder shall be
in writing (including facsimile communication) and shall be
duly given if delivered to Provider at the address set forth
below and if delivered to FSS at Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President.
10. 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. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of
Sections 5 and 6, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission
thereunder.
11. This Agreement may be executed by different
parties on separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
12. This Agreement shall not be assigned by any party
without the prior written consent of FSS in the case of
assignment by Provider, or of Provider in the case of
assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to
a party controlling, controlled by, or under common control
with such party.
13. This Agreement may be amended by FSS from time to
time by the following procedure. FSS will mail a copy of
the amendment to the Provider's address, as shown below. If
the Provider does not object to the amendment within thirty
(30) days after its receipt, the amendment will become part
of the Agreement. The Provider's objection must be in
writing and be received by FSS within such thirty days.
14. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of
any penalty, by FSS or by the vote of a majority of the
Disinterested Trustees or Directors, as applicable, or by a
majority of the outstanding voting securities of the
particular Fund or Class on not more than sixty (60) days'
written notice to the Provider. This Agreement may be
terminated by Provider on sixty (60) days' written notice
to FSS.
15. The Provider acknowledges and agrees that FSS has
entered into this Agreement solely in the capacity of agent
for the Funds and administrator of the Plan. The Provider
agrees not to claim that FSS is liable for any
responsibilities or amounts due by the Funds hereunder.
[Provider]
Address
City State Zip Code
Dated: By:
Authoried Signature
Title
Print Name of Authorized Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
EXHIBIT A to Shareholder Services Sub-Contract with
Funds covered by this Agreement:
FORTRESS UTILITY FUND, INC.
Shareholder Service Fees
1. During the term of this Agreement, FSS will pay
Provider a quarterly fee. This fee will be computed at the
annual rate of 0.25% of 1.00% of the average net asset value
of shares of the Funds held during the quarter in accounts
for which the Provider provides Services under this
Agreement, so long as the average net asset value of Shares
in the Funds during the quarter equals or exceeds such
minimum amount as FSS shall from time to time determine and
communicate in writing to the Provider.
2. For the quarterly period in which the 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
quarter.
