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. 11 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 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 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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 14, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of 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; Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities Dividends and Distributions;
Shareholder Information; Voting
Rights; Tax Information; Federal
Income Tax; Pennsylvania 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 Financial Statements (Incorporated
into the Statement of Additional
Information by reference to the
Registrants Annual Report dated May
31, 1995, File Nos. 33-10209 and 811-
4530).
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,
1995, 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,
which is in paper form only, or a paper copy of this prospectus, if you have
received it electronically, 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, 1995
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
Portfolio Turnover 7
Investment Risks 7
Investment Limitations 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
Share Purchases 10
Minimum Investment Required 11
What Shares Cost 11
Eliminating the Sales Load 12
Systematic Investment Program 14
Exchange Privilege 14
Certificates and Confirmations 15
Dividends and Distributions 15
Retirement Plans 15
REDEEMING SHARES 15
- ------------------------------------------------------
Through a Financial Institution 15
By Telephone 16
Directly By Mail 16
Contingent Deferred Sales Charge 17
Systematic Withdrawal Program 18
Accounts with Low Balances 18
FUND INFORMATION 19
- ------------------------------------------------------
Management of the Fund 19
Distribution of Fund Shares 20
Administration of the Fund 21
Brokerage Transactions
21
SHAREHOLDER INFORMATION 22
- ------------------------------------------------------
Voting Rights 22
TAX INFORMATION 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Personal Property Taxes 22
PERFORMANCE INFORMATION 23
- ------------------------------------------------------
ADDRESSES 24
- ------------------------------------------------------
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)......................................................................... 0.65%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.51%
Shareholder Services Fee (after waiver) (3)................................................ 0.22%
Total Fund Operating Expenses (4)................................................................ 1.16%
</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 in the table above are based on expenses
expected during the fiscal year ending May 31, 1996. The total Fund
operating expenses were 1.14% for the fiscal year ended May 31, 1995 and
would have been 1.25% 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." 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....... $32 $58 $73 $149
You would pay the following expenses on the same investment, assuming no
redemption............................................................... $22 $46 $73 $149
</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)
The following table has been audited by Ernst & Young LLP, Independent Auditors.
Their report dated July 14, 1995, on the Fund's financial statements for the
year ended May 31, 1995, is included in the Annual Report, which is incorporated
by reference. This table should be read in conjunction with the Fund's Financial
Statements and Notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.30 $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18
- ---------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income 0.56 0.63 0.68 0.69 0.77 0.67 0.63 0.63
- ---------------------------------
Net realized and unrealized
gain (loss) on investments 0.44 (0.61) 1.25 1.07 0.51 0.48 0.77 (0.34)
- --------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 1.00 0.02 1.93 1.76 1.28 1.15 1.40 0.29
- ---------------------------------
LESS DISTRIBUTIONS
- ---------------------------------
Distributions from net
investment income (0.61) (0.61) (0.67) (0.66) (0.75) (0.71) (0.60) (0.57)
- ---------------------------------
Distributions from net realized
gain on investment transactions 0.00 (0.01) (0.05) 0.00 (0.08) 0.00 0.00 0.00
- --------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.61) (0.62) (0.72) (0.66) (0.83) (0.71) (0.60) (0.57)
- --------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 12.69 $ 12.30 $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90
- --------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN(B) 8.48% 0.01% 17.02% 17.07% 13.44% 12.13% 16.47% 3.21%
- ---------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------
Expenses 1.14% 1.11% 1.07% 1.10% 1.03% 1.05% 1.08% 1.04%
- ---------------------------------
Net investment income 4.58% 4.92% 5.45% 6.01% 7.12% 6.77% 6.92% 7.18%
- ---------------------------------
Expense waiver/
reimbursement (d) 0.11% 0.12% 0.05% 0.11% 0.61% 1.39% 0.86% 1.00%
- ---------------------------------
SUPPLEMENTAL DATA
- ---------------------------------
Net assets, end of period (000
omitted) $778,820 $892,490 $742,067 $247,482 $66,578 $29,844 $13,476 $9,256
- ---------------------------------
Portfolio Turnover 56% 28% 27% 26% 53% 49% 17% 23%
- ---------------------------------
<CAPTION>
<S> <C>
1987(a)
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00
- ---------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income 0.24
- ---------------------------------
Net realized and unrealized
gain (loss) on investments (0.98)
- --------------------------------- -----------
Total from investment
operations (0.74)
- ---------------------------------
LESS DISTRIBUTIONS
- ---------------------------------
Distributions from net
investment income (0.08)
- ---------------------------------
Distributions from net realized
gain on investment transactions 0.00
- --------------------------------- -----------
Total distributions (0.08)
- --------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.18
- --------------------------------- -----------
TOTAL RETURN(B) (7.74%)
- ---------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------
Expenses 0.53%(c)
- ---------------------------------
Net investment income 7.95%(c)
- ---------------------------------
Expense waiver/
reimbursement (d) 0.97%(c)
- ---------------------------------
SUPPLEMENTAL DATA
- ---------------------------------
Net assets, end of period (000
omitted) $6,305
- ---------------------------------
Portfolio Turnover 12%
- ---------------------------------
</TABLE>
(a) 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, the net investment income was distributed to the Fund's investment
adviser. Such distribution represented net income of the Fund prior to
the initial public offering of the Fund shares which commenced on January
30, 1987.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1995, which can be obtained free of charge.
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 one to four years of their purchase dates.
Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including investing in equity, illiquid and restricted securities,
engaging in put and call options, financial futures and options on futures,
repurchase and reverse repurchase agreements, temporary investments and
when-issued and delayed delivery transactions, and lending portfolio securities.
These risks are described under "Investment Policies."
FORTRESS INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
This Fund is a member of a family of funds ("Fortress Funds"), collectively
known as the Fortress Investment Program. The other funds in the Program are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
California Municipal Income Fund, providing current income exempt from
federal regular income tax and California personal income taxes;
Fortress Adjustable Rate U.S. Government Fund, Inc., providing current
income consistent with lower volatility of principal through a
diversified portfolio of adjustable and floating rate mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
Fortress Bond Fund, providing current income primarily through
high-quality corporate debt;
Fortress Municipal Income Fund, Inc., providing a high level of current
income generally exempt from the federal regular income tax by investing
primarily in a diversified portfolio of municipal bonds;
Government Income Securities, Inc., providing current income through
long-term U.S. government securities;
Liberty Equity Income Fund, Inc., providing above average income and
capital appreciation through income producing equity securities;
Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value;
Limited Term Municipal Fund, providing a high level of current income
which is exempt from federal regular income tax consistent with the
preservation of capital;
Money Market Management, Inc., providing current income consistent with
stability of principal through high-quality money market instruments;
New York Municipal Income Fund, providing current income exempt from
federal regular income tax, New York personal income taxes, and New York
City income taxes;
Ohio Municipal Income Fund, providing current income exempt from federal
regular income tax and Ohio personal income taxes;
Strategic Income Fund, providing high current income through investing in
domestic corporate debt obligations, U.S. government securities, and
foreign government and corporate debt obligations; and
World Utility Fund, providing total return by investing primarily in
securities issued by domestic and foreign companies in the utilities
industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus. 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 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. The Fund may also purchase securities of foreign issuers in the
utilities industry. 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. Bonds rated "BBB" by Standard
& Poor's or "Baa" by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher rated
bonds.
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 net assets.
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, 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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. _The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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.
CONSIDERATION OF UTILITY SECURITIES. _There are certain risks and considerations
affecting utility companies, and the holders of utility company securities,
which an investor should take into account when investing in those securities.
Factors which may adversely affect utility companies include: difficulty in
financing large construction programs during inflationary periods; technological
innovations which may cause existing plants, equipment, or products to become
less competitive or obsolete; the impact of natural or man-made disaster
(especially on regional utilities); increased costs or reductions in production
due to the unavailability of appropriate types of fuels; seasonally or
occasionally reduced availability or higher cost of natural gas; and reduced
demand due to energy conservation among consumers. These revenues of domestic
and foreign utility companies generally reflect the economic growth and
developments in the geographic areas in which they do business. Furthermore,
utility securities tend to be interest rate sensitive.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of such
regulation is to ensure desirable levels of service and adequate capacity to
meet public demand. To this end, prices are often regulated to enable consumers
to obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Recently,
utility regulators have permitted utilities to diversify outside of their
original geographic regions and their traditional lines of business. While the
Adviser believes that these opportunities will permit certain utility companies
to earn more than their traditional regulated rates of return, other companies
may be forced to defend their core business and may be forced to defend their
core business and may be less profitable. Of course, there can be no assurance
that all of the regulatory policies described in this paragraph will continue in
the future.
In addition to the effects of regulation described in the previous paragraph,
utility companies may also be adversely affected by the following regulatory
considerations: the development and implementation of a national energy policy;
the differences between regulatory policies of different jurisdictions (or
different regulators which have concurrent jurisdiction); shifts in regulatory
policies; adequacy of rate increases; and future regulatory legislation.
Foreign utility companies may encounter different risks and opportunities than
those located in the United States. Foreign utility companies may be more
heavily regulated than their United States counterparts. Many foreign utility
companies currently use fuels which cause more pollution than fuels used by
United States utilities; in the future, it may be necessary for such foreign
utility companies to invest heavily in pollution control equipment or otherwise
meet pollution restrictions. Rapid growth in certain foreign economies may
encourage the growth of utility industries in those countries. Although many
foreign utility companies are currently government-owned, the Adviser believes
that it is likely that some foreign governments will seeks "privatize" their
utility companies, i.e., transfer ownership to private investors.
In addition to the foregoing considerations which affect most utility companies,
there are specific considerations which affect specific utility industries:
ELECTRIC. The electric utility industry is made up of companies that are
engaged in the generation, transmission, and sale of electric energy. Domestic
electric utility companies have generally been favorably affected by lower fuel
and financing costs and the completion of major construction programs. Some
electric utilities are able to sell power outside of their traditional
geographic areas. Electric utility companies have historically been subject to
increases in fuel and other operating costs, high interest costs on borrowings
needed for capital construction programs, compliance with environmental and
safety regulations, and changes in the regulatory climate.
In the United States, the construction and operation nuclear power facilities is
subject to a high degree of regulatory oversight by the Nuclear Regulatory
Commission and state agencies with concurrent jurisdiction. In addition, the
design, construction, licensing, and operation of nuclear power facilities are
often subject to lengthy delays and unanticipated costs due to changes in
regulatory policy, regional political actions, and lawsuits. Furthermore, during
rate authorizations, utility regulators may disallow the inclusion in electric
rates of the higher operating costs and expenditures resulting from these delays
and unanticipated costs, including the costs of a nuclear facility which a
utility company may never be able to use.
TELECOMMUNICATIONS. The telephone industry is large and highly concentrated.
The greatest portion of this segment is comprised of companies which distribute
telephone services and provide access to the telephone networks. While many
telephone companies have diversified into other businesses in recent years, the
profitability of telephone utility companies could be adversely affected by
increasing competition, technological innovations, and other structural changes
in the industry.
Cable television companies are typically local monopolies, subject to scrutiny
by both utility regulators and municipal governments. Emerging technologies and
legislation encouraging local competition are combining to threaten these
monopolies and may slow future growth rates of these
companies. The radio telecommunications segment of this industry, including
cellular telephone, is in its early developmental phases and is characterized by
emerging, rapidly growing companies.
GAS. Gas transmission and distribution companies are undergoing significant
changes. in the United States, the Federal Energy Regulatory Commission is
reducing its regulation of interstate transmission of gas. While gas utility
companies have in the recent past been adversely affected by disruptions in the
oil industry, increased concentration, and increased competition, the Adviser
believes that environmental considerations should benefit the gas industry in
the future.
WATER. Water utility companies purify, distribute, and sell water. This
industry is highly fragmented because most of the water supplies are owned by
local authorities. Water utility companies are generally mature and are
experiencing littler or no per capita volume growth. The Adviser believes that
favorable investment opportunities may result if anticipated consolidation and
foreign participation in this industry occurs.
REDUCING RISKS OF UTILITY SECURITIES. The 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 and diversification techniques. The 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.
SECURITIES OF FOREIGN ISSUERS. Investing in non-U.S. securities carries
substantial risks in addition to those associated with domestic investments. In
an attempt to reduce some of these risks, the Fund diversifies its investments
broadly among foreign countries, including both developed and developing
countries.
The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. These investments,
however, carry considerably more volatility and risk because they are associated
with less mature economies and less stable political systems.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Fund values
its assets daily in U.S. dollars, it will not convert its holding of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which they buy and sell
securities.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
less publicly available information about foreign companies;
the lack of uniform financial accounting standards applicable to foreign
companies;
less readily available market quotations on foreign companies;
differences in government regulations and supervision of foreign stock
exchanges, brokers, listed companies and banks;
generally lower foreign stock market value;
the likelihood that foreign securities may be less liquid or more
volatile;
foreign brokerage commissions may be higher;
unreliable mail service between countries; and
political or financial changes which adversely affect investments in
some countries.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investment abroad by investors such as the
Fund. Although the Fund is unaware of any current restrictions, investors are
advised that these policies could be reinstituted.
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
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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, P.O.
Box 8600, Boston, MA 02266-8600.
Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company, 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
transfer agent's bank, State Street Bank, 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. 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 Shares purchased through bank trust departments or investment
advisers registered under the Investment Advisers Act of 1940, as amended,
purchasing on behalf of their clients, or by sales representatives, Directors,
and employees of the Fund, Federated Advisers, and Federated Securities Corp.,
or their affiliates, or any investment dealer who has a sales agreement with
Federated Securities Corp., their spouses and children under age 21, or any
trusts or pension or profit-sharing plans for these persons, or retirement plans
where the third party administrator has entered into certain arrangements with
Federated Securities Corp. or its affiliates. Unaffiliated institutions through
whom Shares are purchased may charge fees for services provided which may be
related to the ownership of Fund Shares. This prospectus should, therefore, be
read together with any agreement between 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), and as of the
close of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; or (iii)
the following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Shares," shareholders may
be charged a contingent deferred sales charge by the distributor at the time
shares are redeemed.
DEALER CONCESSION. For sales of Shares, broker/dealers will normally receive
100% of the applicable sales load. Any portion of the sales load which is not
paid to a broker/dealer will be retained by the distributor. However, from time
to time, and at the sole discretion of the distributor, all or part of that
portion may be paid to a dealer. The sales load for shares sold other than
through registered broker/dealers will be retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales load in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of 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 the public
offering price of $1 million and purchases an additional $1 million at the
current public offering price, the applicable contingent deferred sales charge
would be reduced to.50% of those additional shares. For more information on the
levels of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."
To receive the sales load elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by the shareholder's 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 8600, Boston, MA 02266-8600.
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, 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, 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 full years 1%
$2,000,000 to $4,999,999 less than 2 full years .50%
$5,000,000 or more less than 1 full 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, or retirement plans where the
third party administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, are not subject to the contingent deferred
sales charge, to the extent that 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 one to 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"). 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, (the "Adviser") subject to direction
by the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors, and could
result in severe penalties.
ADVISORY FEES. The Fund's Adviser receives 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 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 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. With over $72 billion invested across
more than 260 funds under management and/or administration by its
subsidiaries, as of December 31, 1994, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,750 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Christopher H. Wiles has been the Fund's portfolio manager since May 1990.
Mr. Wiles joined Federated Investors in 1990 and has been a Vice President
of the Fund's 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.
Linda A. Duessel has been the Fund's co-portfolio manager since January 1,
1995. Ms. Duessel joined Federated Investors in 1991 as an Assistant Vice
President of the Fund's investment adviser. Ms. Duessel was employed at
Westinghouse Credit Corporation from 1983 to 1991, serving in a variety of
positions which culminated in her being named Vice President/Portfolio
Manager in the Merchant Banking Group in 1990. Ms. Duessel served as a
Senior Staff Accountant at Arthur Young & Company from 1979 to 1982. Ms.
Duessel received her M.S.I.A. from Carnegie Mellon University. Ms. Duessel
is a Certified Public Accountant and a Chartered Financial Analyst.
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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor will pay
financial institutions an advance commission 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 and is
paid from the distributor's assets.) The financial institution 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 or Federated Shareholder Services may offer to pay
a fee from its own assets to financial institutions as financial assistance for
providing substantial marketing and sales support. The support may include
participating in sales, educational and training seminars at recreational-type
facilities, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of fund 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 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 ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund may make payments up to 0.25 of 1% of the
average daily net asset value of Fortress Shares, computed at an annual rate, to
obtain certain personal services for shareholders and the maintenance of
shareholder accounts ("shareholder services"). Under the Shareholder Services
Agreement, 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, P.O. Box 8600, Boston,
Massachusetts 02266-8600, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8600, Boston, Massachusetts 02266-8600, is transfer agent for the shares of
the Fund and dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, 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 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 PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania. Shareholders are urged to
consult their own tax advisers regarding the status of their accounts under
state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the Funds
performance to certain indices.
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 8600
Trust Company Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
FORTRESS UTILITY
FUND, INC.
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
Prospectus dated July 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Cusip 349561100
9090505A (7/95)
FORTRESS UTILITY FUND, INC.
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Fortress Utility Fund, Inc. (the "Fund") dated July
31, 1995. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write or call Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of
FEDERATED INVESTORS
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 2
Financial Futures and Options
on Futures 2
Portfolio Turnover 2
CONCENTRATION OF INVESTMENTS 2
INVESTMENT LIMITATIONS 3
FORTRESS UTILITY FUND, INC.
MANAGEMENT 5
Fund Ownership 9
Directors Compensation 10
Director Liability 10
INVESTMENT ADVISORY SERVICES 10
Adviser to the Fund 10
Advisory Fees 11
Other Related Services 11
ADMINISTRATIVE SERVICES 11
SHAREHOLDER SERVICES AGREEMENT 11
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 11
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 12
Purchases by Sales
Representatives, Fund
Directors, and Employees 12
Determining Value of Securities 12
REDEEMING SHARES 13
Redemption in Kind 13
EXCHANGING SECURITIES FOR FUND
SHARES 13
Tax Consequences 13
EXCHANGE PRIVILEGE 13
Reduced Sales Charge 14
Requirements For Exchange 14
Tax Consequences 14
Making An Exchange 14
TAX STATUS 14
The Fund's Tax Status 14
Shareholders' Tax Status 14
TOTAL RETURN 15
YIELD 15
PERFORMANCE COMPARISONS 15
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 16
Institutional 17
Trust Organizations 17
Broker/dealers and bank
broker/dealer subsidiaries 17
FINANCIAL STATEMENTS 17
APPENDIX 18
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
Farm Credit System, Inluding the National Bank for Cooperatives;
Federal Home Loan Banks; Federal Home Loan Mortgage Corporation;
Central Bank for Cooperatives; Federal National Mortgage Association;
Government National Mortgage Association; Export Import Bank of the
United States; Commodity Credit Corporation; Federal Financing Bank;
The Student Loan Marketing Association; and Farmers Home
Administration.
When-Issued And Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Fund does not intend to engage in when-
issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
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 Board of Directors (the "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, 1995 and 1994, the portfolio turnover
rates were 56%, and 28%, 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:
o 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
o 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:
o certificates of deposit (including those issued by domestic and
foreign branches of FDIC insured banks);
o obligations issued or guaranteed as to principal and interest by
the U.S. government or any of its agencies or instrumentalities;
and
o repurchase agreements.
Fortress Utility Fund, Inc. Management
Officers and Directors are listed with their addresses, present
positions with Fortress Utility Fund, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice President of the Company.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty;
Director, Eat'N Park Restaurants, Inc., and Statewide Settlement Agency,
Inc.; Director, Trustee, or Managing General Partner of the Funds;
formerly, Counsel, Horizon Financial, F.A., Western Region.
Glen R. Johnson *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
Director
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman,
Czecho Management Center; Director, Trustee, or Managing General Partner
of the Funds; President Emeritus, University of Pittsburgh; founding
Chairman, National Advisory Council for Environmental Policy and
Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-
profit entities; Director, Trustee, or Managing General Partner of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Company.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
the
the Funds.
David M. Taylor *
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President, Controller, and Trustee, Federated Investors;
Controller, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., and Passport Research, Ltd.; Senior
Vice President, Federated Shareholder Services; Senior Vice President,
Federated Administrative Services; Treasurer of the Funds.
* This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S, Government Securities Fund: 3-5 Years; 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;; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds;
New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; The Virtus Funds; World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding
shares.
As of July 7, 1995, the following shareholder of record owned 5% or more
of the outstanding shares of the Fund: Merrill Lynch Pierce Fenner &
Smith, Jacksonville, FL, as record owner holding Fund shares for its
clients, owned approximately 14,713, 889 shares (24.39%).
Directors Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Fund and
President and Director 68 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ 2,005 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
William J. Copeland, $ 2,005 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
James E. Dowd, $ 2,005 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 1,834 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 2,005 $117,202 for the Fund and
Director 64 other investment companies in the Fund
Complex
Glen R. Johnson $ 0 $0 for the Trust and
Director 8 other investment companies in the Fund
Complex
Peter E. Madden, $ 1,554 $90,563 for the Fund and
Director 64 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 1,834 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
John E. Murray, Jr., $893 $0.00 for the Fund and
Director 64 other investment companies in the Fund
Complex
Wesley W. Posvar, $1,834 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 1,834 $106,460 for the Fund and
Director 64 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended March 31, 1995.
+The information is provided for the last calendar year.
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 the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. During the
fiscal years ended May 31, 1995, 1994, and 1993, the Fund's adviser
earned $6,080,157, $6,950,251, and $3,387,794, respectively, of which
$928,126, $1,097,659, and $217,481, respectively, were voluntarily
waived 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.
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, 1995,
Federated Administrative Services earned $613,690. For the fiscal year
ended May 31, 1994, the Administrators collectively earned $1,008,365.
For the fiscal years ended May 31, 1993, Federated Administrative
Services, Inc., earned $571,029.
SHAREHOLDER SERVICES AGREEMENT
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, 1995, the Fund paid shareholder
service fees in the amount of $1,734,398.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The 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, 1995, 1994, and 1993, the Fund paid
$1,075,137, $479,862, and $697,146, 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:
o for equity securities and bonds and other fixed income securities,
according to the last sale price on a national securities
exchange, if available;
o 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;
o for unlisted equity securities, the latest mean prices;
o 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
o for all other securities, at fair value as determined in good
faith by the 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 Fortress shares for shares in other Fortress Funds without
the assessment of a contingent deferred sales charge on the exchanged
shares.
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. 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, 1995, and for the period from January 30, 1987
(effective date of the Fund's registration statement) to May 31, 1995
were 6.41%, 10.79%, and 9.15%, 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, 1995 was 4.32%.
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:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in Fund expenses; and
o 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:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the
"utility funds" category in advertising and sales literature.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected blue chip industrial corporations as well as public
utility and transportation companies. The DJIA indicates daily
changes in the average price of stocks in any of its categories.
It also reports total sales for each group of industries. Because
it represents the top corporations of America, the DJIA is a
leading economic indicator for the stock market as a whole.
o STANDARD & POOR'S Ratings Group DAILY STOCK PRICE INDEX OF 500
COMMON STOCKS, 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.
o STANDARD & POOR'S Ratings Group 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.
o 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.
o MORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
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.
About Federated Investors
Federated is dedicated to meeting investor needs which is reflected
in its investment decision making --structured, straightforward, and
consistent. This has resulted in a history of competitive
performance with a range of competitive investment products that have
gained the confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience.
As of December 31, 1994, Federated managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity
income, international, index and sector (i.e. utility) styles.
Federated's value-oriented management style combines quantitative and
qualitative analysis and features a structured, computer-assisted
composite modeling system that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1994, Federated
managed 8 money market funds, 5 investment grade and 4 high yield
bond funds with assets approximating $7.4 billion, $.9 billion and
$.8 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by
over 20 years of experience in the corporate bond sector. In 1972,
Federated introduced one of the first high-yield bond funds in the
industry. In 17 years ending December 1994, Federated's high-yield
portfolios experienced a default rate of just 1.86%, versus 3.10% for
the market as a whole. In 1983, Federated was one of the first fund
managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.
J. Thomas Madden, Executive Vice President, oversees Federated's
equity and high yield corporate bond management while William D.
Dawson, Executive Vice President, oversees Federated's domestic fixed
income management. Henry A. Frantzen, Executive Vice President,
oversees the management of Federated's international portfolios.
Mutual Fund Market
Twenty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $2 trillion to the
more than 5,500 funds available.*
*source: Investment Company Institute
Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:
Institutional
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and
defined contribution programs, cash management, and asset/liability
management. Institutional clients include corporations, pension
funds, tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The marketing
effort to these institutional clients is headed by John B. Fisher,
President, Institutional Sales Division.
Trust Organizations
Other institutional clients include close relationships with more
than 1,500 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds
in their clients' portfolios. The marketing effort to trust clients
is headed by Mark R. Gensheimer, Executive Vice President, Bank
Marketing & Sales.
Broker/dealers and bank broker/dealer subsidiaries
Federated mutual funds are available to consumers through major
brokerage firms nationwide--including 200 New York Stock Exchange
firms--supported by more wholesalers than any other mutual fund
distributor. The marketing effort to these firms is headed by James
F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended May 31, 1995, are
incorporated herein by reference to the Annual Report of the Fund dated
May 31, 1995 (File Nos. 33-10209 and 811-4530). A copy of the Report may
be obtained without charge by contacting the Fund.
APPENDIX
STANDARD & POOR'S Ratings Group, ("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.
Cusip 349561100
9090505B (7/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements incorporated in the Statement of
Additional Information by reference to the Registrants
Annual Report dated May 31, 1995;
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant ; +
(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) Conformed copy of Investment Advisory Contract of the
Registrant ; +
(6) (i) Conformed copy of Distributor's
Contract of the Registrant; +
(ii) The Registrant incorporates the conformed copy
of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and Plan
Trustee/ Mutual Funds Service Agreement from Item
24(b)(6) of the Cash Trust Series II Registration
Statement filed with the Commission on July 24,
1995. (File Number 33- 38550 and 811-6269);
(7) Not applicable;
(8) Copy of Custodian Agreement of the Registrant; +
(9) (i) Conformed copy of Agreement for Fund
Accounting, Shareholder Recordkeeping, and
Custody Services Procurement of the
Registrant; +
(ii) The response and exhibits described in
Item 24(b)(6) are hereby incorporated by
reference;
(iii) Conformed Copy of Shareholder Services
Agreement (7);
(iv) Conformed Copy of Administrative Services
Agreement (7);
(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) Copy of Financial Data Schedules; +
(18) Not Applicable;
(19) Conformed copy of Power of Attorney. +
+ All exhibits have been filed electronically.
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)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on form N-1A filed on July 28, 1994. (File No. 33-10209)
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 7, 1995
Shares of capital stock 48,527
($0.001 per Share par value)
Item 27. Indemnification: (1)
_______________
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, Mark L. Mallon,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, and J. Alan
Minteer, Senior Vice Presidents; J. Scott Albrecht,
Randall A. Bauer, David A. Briggs, Jonathan C. Conley,
Deborah A. Cunningham, Michael P. Donnelly, Mark E.
Durbiano, Kathleen M. Foody-Malus, Thomas M. Franks,
Edward C. Gonzales, Jeff A. Kozemchak, Marian R. Marinack,
John W. McGonigle, Susan M. Nason, Mary Jo Ochson, Robert
J. Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter,
James D. Roberge, Sandra L. Weber, 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, Pennsylvania 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.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following
open-end investment companies: Alexander Hamilton Funds; American
Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust;
BayFunds; The Biltmore Funds; The Biltmore Municipal Funds;
California Municipal Cash Trust; Cash Trust Series, Inc.; Cash
Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated
Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fountain
Square Funds; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund,
Inc.; Liberty U.S. Government Money Market Trust; Liberty Utility
Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The
Planters Funds; RIMCO Monument Funds; The Shawmut Funds; Short-
Term Municipal Trust; SouthTrust Vulcan Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust
for Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Fiduciary Funds, Inc.; Vision Group of Funds,
Inc.; The Virtus Funds; 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 Executive Vice
Federated Investors Tower President, and Treasurer, President
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Executive Vice
Federated Investors Tower President, and Assistant President and
Pittsburgh, PA 15222-3779 Secretary, Federated Secretary
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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp. __
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp. __
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp. __
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30 Location of Accounts and Records. All accounts and records
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Federated Services Company, P.O. Box 8600
("Transfer Agent and Dividend Boston, Massachusetts 02266-8600
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 8600
Trust Company, Boston, Massachusetts 02266-8600
("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, thereto duly authorized, in the
City of Pittsburgh and Commonwealth of Pennsylvania, on the 26th day of
July, 1995.
FORTRESS UTILITY FUND, INC.
BY: /s/ Charles Field
Charles Field, Assistant Secretary
Attorney in Fact for John F. Donahue
July 26, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Charles Field
Charles Field Attorney In Fact July 26, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Richard B. Fisher* President
Edward C. Gonzales* Executive Vice President
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr.* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in Post-Effective Amendment
Number 11 to the Registration Statement (Form N-1A No. 33-10209) and the
related Prospectus of Fortress Utility Fund, Inc. dated July 31, 1995
and to the incorporation by reference therein of our report dated July
14, 1995 on the financial statements and financial highlights of
Fortress Utility Fund, Inc. included in its Combined Annual Report to
Shareholders for the year ended May 31, 1995
By: ERNST & YOUNG LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
July 24, 1995
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of ***SEE BELOW*** and the
Assistant General Counsel of Federated Investors, and each of them, their true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each of them, full power and authority
to sign and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as each of
them might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and Director July 7, 1995
John F. Donahue (Chief Executive Officer)
/s/ Richard B. Fisher President July 7, 1995
Richard B. Fisher
/s/ Edward C. Gonzales Executive Vice President July 7, 1995
Edward C. Gonzales
/s/ John T. Conroy, Jr. Director July 7, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Director July 7, 1995
William J. Copeland
/s/ James E. Dowd Director July 7, 1995
James E. Dowd
/s/ David M. Taylor Treasurer July 7, 1995
David M. Taylor (Principal Financial and
Accounting Officer)
***FORTRESS UTILITY FUND, INC.
SIGNATURES TITLE DATE
/s/Lawrence D. Ellis, M.D. Director July 7, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director July 7, 1995
Edward L. Flaherty, Jr.
/s/ Petere E. Madden Director July 7, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director July 7, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Director July 7, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Director July 7, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director July 7, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 7th day of July, 1995.
/s/Marie M. Hamm
-1-
Exhibit 1 under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
ARTICLES OF INCORPORATION
OF
FORTRESS UTILITY FUND, INC.
The undersigned, John W. McGonigle, whose post office address is
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, being at
least twenty-one years of age, does under and by virtue of the General
Laws of the State of Maryland authorizing the formation of corporations,
hereby form a corporation.
FIRST: The name of the Corporation is FORTRESS UTILITY FUND, INC.
SECOND: The purpose for which the Corporation is formed is to act
as an open-end investment company of the management type registered as
such with the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940 and to exercise and generally to enjoy
all of the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or
hereafter in force.
THIRD: The post office address of the principal office and the
office of the resident agent of the Corporation in the State of Maryland
is 32 South Street, Baltimore, Maryland 21202. The resident agent of
the Corporation in the state of Maryland is THE CORPORATION TRUST
INCORPORATED, which is a corporation organized and existing under the
laws of the State of Maryland.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 2,000,000,000 shares of Capital Stock,
all of one class, of the par value of $0.001 per share, and of the
aggregate par value of $2,000,000 (hereinafter referred to as "Shares").
FIFTH: (a) The number of Directors of the Corporation shall be
ten, or such other number as may be from time to time fixed in the
manner provided by the By-Laws of the Corporation but shall never be
less than three (3).
(b) The names of the Directors who shall act until the first
Annual Meeting or until their successors are duly chosen and qualify
are:
John F. Donahue Glen R. Johnson
William J. Copeland J. Joseph Maloney, Jr.
James E. Dowd Gregor F. Meyer
Lawrence D. Ellis, M.D. Wesley W. Posvar
Edward L. Flaherty, Jr. Marjorie P. Smuts
SIXTH: The Board of Directors is empowered to authorize the
issuance from time to time of Shares of the Corporation, whether now or
hereafter authorized; provided, however, that the consideration per
Share to be received by the Corporation upon the issuance or sale of any
Shares shall be the net asset value per Share determined in accordance
with the requirements of the Investment Company Act of 1940 and the
applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) and in conformity
with generally accepted accounting practices and principles.
SEVENTH: (a) To the extent the Corporation has funds or property
legally available therefor, each Shareholder of the Corporation shall
have the right at such times as may be permitted by the Corporation, but
no less frequently than once each week, to require the Corporation to
redeem all or any part of its Shares at a redemption price equal to the
net asset value per Share next determined after the Shares are tendered
for redemption; said determination of the net asset value per Share to
be made in accordance with the requirements of the Investment Company
Act of 1940 and the applicable rules and regulations of the Securities
and Exchange Commission (or any succeeding governmental authority) and
in conformity with generally accepted accounting practices and
principles.
Notwithstanding the foregoing, the Corporation may postpone payment
or deposit of the redemption price and may suspend the right of the
Shareholders to require the Corporation to redeem Shares pursuant to the
applicable rules and regulations, or any order, of the Securities and
Exchange Commission.
(b) The Corporation shall have the right, exercisable at
the discretion of the Board of Directors, to redeem Shares of any
Shareholder for their then current net asset value per Share if at such
time the Shareholder owns Shares having an aggregate net asset value of
less than the amount set forth in the current Registration Statement of
the Corporation filed with the Securities and Exchange Commission.
(c) Each Share is subject to redemption by the
Corporation at the redemption price computed in the manner set forth in
subparagraph (a) of Article SEVENTH of this Charter at any time if the
Board of Directors, in its sole discretion, determines that failure to
so redeem may result in the Corporation being classified as a personal
holding company as defined in the Internal Revenue Code.
(d) Transfer of Shares will be recorded on the stock
transfer records of the Corporation at the request of the holders
thereof at any time during normal business hours of the Corporation
unless the Board of Directors of the Corporation determines, in its sole
discretion, that allowing such transfer may result in the Corporation
being classified as a personal holding company as defined in the
Internal Revenue Code.
EIGHTH: The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Directors and Shareholders:
(a) No Shareholder shall have any pre-emptive or preferential
right of subscription to any Shares of any class whether now or
hereafter authorized. The Board of Directors may issue Shares without
offering the same either in whole or in part to the Shareholders.
(b) Shares may be purchased, held and disposed of by the
Officers and Directors of the Corporation, by partnerships of which any
such Officer or Director may be a member and by corporations of which
any Officer or Director of the Corporation may be an officer or
director. Except as above set forth, or authorized by the Securities
and Exchange Commission, the Officers and Directors of the Corporation
and partnerships or corporations which are affiliates of the Officers or
Directors may not deal with the Corporation as principals in the
purchase or sale of any securities or other property.
(c) The Corporation may enter into exclusive or non-exclusive
underwriting contracts or contracts for the sale of its Shares and may
also enter into contracts for investment advisory, management and
administrative services. The terms and conditions, methods of
authorization, renewal, amendment and termination of the aforesaid
contracts shall be as determined at the discretion of the Board of
Directors; subject, however, to the provisions of the Charter of the
Corporation, the By-Laws of the Corporation, applicable state law, and
the Investment Company Act of 1940 and the rules and regulations of the
Securities and Exchange Commission.
(d) Subject to and in compliance with the provisions of the
Maryland General Corporation Law respecting interested director
transactions, the Corporation may enter into a written underwriting
contract, management contractor contracts for research and advisory
services with Federated Management or its parent, affiliates or
subsidiaries thereof, or their respective successors, or otherwise do
business with such corporation, notwithstanding the fact that one or
more of the Directors of the Corporation and some or all of its Officers
are, have been, or may become Directors, Officers, Employees or
Stockholders of Federated Management or its parent, affiliates or
subsidiaries or successors, and in the absence of actual fraud the
Corporation may deal freely with Federated Management or its parent,
affiliates, subsidiaries or successors, and neither such underwriting
contract, management contract or contract for research and advisory
services nor any other contract or transaction between the Corporation
and Federated Management or its parent, affiliates, subsidiaries or
successors shall be invalidated or in any way affected thereby, nor
shall any Director or Officer of the Corporation be liable to the
Corporation or to any Shareholder or creditor of the Corporation or to
any other person for any loss incurred under or by reason of any such
contract or transaction. Anything in the foregoing notwithstanding, no
Officer or Director or underwriter or investment adviser of the
Corporation shall be protected against any liability to the Corporation
or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(e) No Officer or Director of the Corporation or of any
investment advisory company or management company, nor the Corporation
itself, nor such investment advisory or management company or
underwriter of the Corporation shall take long or short positions in
respect of any Shares issued by the Corporation; provided, however, that
such prohibition shall not prevent:
(i) Any underwriter from purchasing Shares issued by the
Corporation from the Corporation, provided that orders to
purchase from the Corporation are entered with the
Corporation by such underwriter either for investment or
upon receipt by it of purchase orders for Shares of the
Corporation, and provided such purchases are not in excess
of purchase orders received by such underwriter;
(ii) The Corporation or any distributor or underwriter from
maintaining a market for Shares issued by the
Corporation;
(iii) The purchase from the Corporation of Shares by the
Officers or Directors of the Corporation or of any
investment advisory, management company or underwriter or
distributor of the Corporation at the prices available to
the public or as authorized by the Securities and Exchange
Commission at the moment of such purchase.
(f) The Corporation shall indemnify its Officers, Directors,
employees and agents and any person who serves at the request of the
Corporation as a Director, Officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise as
follows:
(i) Every person who is or has been a Director, Officer,
employee or agent of the Corporation and persons who serve
at the Corporation's request as Director, Officer,
employee or agent of another corporation, partnership,
joint venture, trust or other enterprise shall be
indemnified by the Corporation to the fullest extent
permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection
with any debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any kind in
which he becomes involved as a party or otherwise by
virtue of his being or having been a Director, Officer,
employee or agent of the Corporation or of another
corporation, partnership, joint venture, trust or other
enterprise at the request of the Corporation and against
amounts paid or incurred by him in the settlement thereof.
(ii) The words "claim," "action," "suit" or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil,
criminal, administrative, legislative, investigative or
other, including appeals), actual or threatened, and the
words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts
paid in settlement, fines, penalties and other
liabilities.
(iii) No indemnification shall be provided hereunder to a
Director, Officer, employee or agent against any liability
to the Corporation or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct
of his office.
(iv) The rights of indemnification herein provided may be
insured against by policies maintained by the Corporation,
shall be severable, shall not affect any other rights to
which any Director, Officer, employee or agent may now or
hereafter be entitled, shall continue as to a person who
has ceased to be such Director, Officer, employee, or
agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(v) In the absence of a final decision on the merits by a
court or other body before which such proceeding was
brought, an indemnification payment will not be made,
except as provided in paragraph (vi) of this paragraph
(f), unless in the absence of such a decision, a
reasonable determination based upon a factual review has
been made (1) by a majority vote of a quorum of non-party
Directors who are not interested persons of the
Corporation, or (2) by independent legal counsel in a
written opinion that the indemnitee was not liable for an
act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties.
(vi) The Corporation further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an
Officer, Director or controlling person of the Corporation
will not be made absent the fulfillment of at least one of
the following conditions: (i) the indemnitee provides
security for his undertaking, (ii) the Corporation is
insured against losses arising by reason of any lawful
advances or (iii) a majority of a quorum of disinterested
non-party Directors or independent legal counsel in a
written opinion makes a factual determination that there
is a reason to believe the indemnitee will be entitled to
indemnification.
(g) The Board of Directors shall, subject to the laws of
Maryland, have the power to determine, from time to time, whether and to
what extent and at what times and places and under what conditions and
regulations any accounts and books of the Corporation, or any of them,
shall be open to the inspection of Shareholders.
(h) Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all classes of Shares
entitled to be cast to take or authorize any action, the Corporation may
take or authorize any such action upon the concurrence of a majority of
the aggregate number of the votes entitled to be cast thereon.
(i) The Corporation reserves the right from time to time to
make any amendment of its Charter now or hereafter authorized by law,
including any amendment which alters the contract rights, as expressly
set forth in its Charter, of any outstanding Shares, except that no
action affecting the validity or assessibility of such Shares shall be
taken without the unanimous approval of the outstanding shares.
(j) In addition to the powers and authority conferred upon
them by the Charter of the Corporation or By-Laws, the Board of
Directors may exercise all such powers and authority and do all such
acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of applicable state law and the
Charter and By-Laws of the Corporation.
(k) The Board of Directors is expressly authorized to
determine in accordance with generally accepted accounting principles
and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose, whether annual or any
other period, including daily; to set apart out of any funds of the
Corporation such reserves for such purposes as it shall determine and to
abolish the same; to declare and pay dividends and distributions in
cash, securities or other property from surplus or any funds legally
available therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis, as it shall determine; to
declare such dividends or distributions by means of a formula or other
method of determination, at meetings held less frequently than the
frequency of the effectiveness of such declarations; to establish
payment dates for dividends or any other distributions on any basis,
including dates occurring less frequently than the effectiveness of
declarations thereof; and to provide for the payment of declared
dividends on a date earlier or later than the specified payment date in
the case of Shareholders redeeming their entire ownership of Shares.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation on
the 20th day of April, 1990.
/s/ John W. McGonigle
JOHN W. MCGONIGLE
COMMONWEALTH OF PENNSYLVANIA )
: ss:
COUNTY OF ALLEGHENY )
I hereby certify that on April 20, 1990, before me, the subscriber,
a Notary Public of the Commonwealth of Pennsylvania, in and for the
County of Allegheny, personally appeared JOHN W. MCGONIGLE, who
acknowledged the foregoing Articles of Incorporation to be his act.
WITNESS my hand and notarial seal or stamp the day and year last
above written.
/s/ Linda L. Banas
Notary Public
-1-
Exhibit 5 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FORTRESS UTILITY FUND, INC.
INVESTMENT ADVISORY CONTRACT
This Contract is made between FEDERATED MANAGEMENT, a Delaware
business trust having its principal place of business in Pittsburgh,
Pennsylvania (hereinafter referred to as 'Adviser'), and FORTRESS
UTILITY FUND, INC., a Maryland corporation, having its principal place
of business in Pittsburgh, Pennsylvania (hereinafter referred to as the
'Fund') and is based on the following premises:
(a) That the Fund is an open-end management investment company as
that term is defined in the Investment Company Act of 1940 and
is registered as such with the Securities and Exchange
Commission;
(b) That Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The Fund hereby appoints Adviser as investment adviser and
Adviser accepts the appointment. Subject to the direction of the
Directors of the Fund, Adviser shall provide investment research and
supervision of the investments of the Fund and conduct a continuous
program of investment, evaluation and of appropriate sale or other
disposition and reinvestment of the Fund's portfolio.
2. Adviser, in its supervision of the investments of the Fund will
be guided by the Fund's fundamental investment policies and the
provisions and restrictions contained in the Articles of Incorporation
and By-Laws of the Fund and as set forth in the Registration Statements
and exhibits as may be on file with the Securities and Exchange
Commission.
3. The Fund shall pay all of its expenses, including, without
limitation, the expenses of organizing the Fund and continuing the
Fund's existence; fees and expenses of Directors and Officers of the
Fund; fees for investment advisory services and administrative personnel
and services; fees and expenses of preparing and printing its
Registration Statements under the Securities Act of 1933 and the
Investment Company Act of 1940 and any amendments thereto; expenses of
registering and qualifying the Fund and its shares under Federal and
State laws and regulations; expenses of preparing, printing, and
distributing prospectuses (and any amendments thereto) to current
shareholders; expenses of registering and licensing or other
authorization of the Fund as a broker-dealer and of its officers as
agents and salesmen under Federal and State laws and regulations;
interest expense, taxes, fees, and commissions of every kind; expenses
of issue (including cost of share certificates), purchase, repurchase,
and redemption of shares, including expenses attributable to a program
of periodic issue; charges and expenses of custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents, and
registrars; printing and mailing costs, auditing, accounting, and legal
expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Directors and shareholders and
proxy solicitations therefor; insurance expenses; association membership
dues and such nonrecurring items as may arise, including all losses and
liabilities incurred in administering the Fund. The Fund will also pay
extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings and claims and the legal
obligations of the Fund to indemnify its trustees, officers, employees,
shareholders, distributors and agents with respect thereto.
4. For all services rendered by Adviser hereunder, the Fund shall
pay to Adviser and Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual gross investment advisory fee
equal to .75% of the average daily net assets of the Fund. Such fee
shall be accrued and paid daily at the rate of 1/365th of .75% of the
daily net assets of the Fund.
5. The Adviser may from time to time and for such periods as it
deems appropriate reduce its compensation (and, if appropriate, assume
expenses of the Fund) to the extent that the Fund's expenses exceed such
lower expense limitation as the Adviser may, by notice to the Fund,
voluntarily declare to be effective.
6. The term of this Contract shall begin on the date of its
execution and shall continue in effect for two years from its execution
and from year to year thereafter, subject to the provisions for
termination and all of the other terms and conditions hereof if: (a)
such continuation shall be specifically approved at least annually by
the vote of a majority of Directors of the Fund, including a majority of
the Directors who are not parties to this Contract or interested persons
of any such party (other than as Directors of the Fund) cast in person
at a meeting called for that purpose; and (b) Adviser shall not have
notified the Fund in writing at least sixty (60) days prior to the
anniversary date of this Contract in any year thereafter that it does
not desire such continuation.
7. Notwithstanding any provision in this Contract, it may be
terminated at any time, without the payment of any penalty, by the
Directors of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund on sixty (60) days' written notice to the
Adviser.
8. This Contract may not be assigned by Adviser and shall
automatically terminate in the event of any assignment. Adviser may
employ or contract with such other person, persons, corporation or
corporations at its own cost and expense as it shall determine in order
to assist it in carrying out this Contract.
9. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of the obligations or duties under this
contract on the part of Adviser, Adviser shall not be liable to the Fund
or any shareholder for any act or omission in the course of or connected
in any way with rendering services or for any losses that may be
sustained in the purchase, holding or sale of any security.
10. This Contract may be amended at any time by agreement of the
parties, provided that the amendment shall be approved both by the vote
of a majority of the Directors of the Fund, including a majority of the
Directors who are not parties to this Contract or interested persons of
any such party to this Contract (other than as Directors of the Fund)
cast in person at a meeting called for that purpose, and by the holders
of a majority of the outstanding voting securities of the Fund.
11. The Fund is hereby expressly put on notice of the limitation of
liability as set forth in the Articles of Incorporation of the Adviser
and agrees that the obligations assumed by the Adviser pursuant to this
Contract shall be limited in any case to the Adviser and its assets and,
except to the extent expressly permitted by the Investment Company Act
of 1940, the Fund shall not seek satisfaction of any such obligation
from the shareholders of the Adviser, the Directors, officers, employees
or agents of the Adviser, or any of them.
12. This Contract shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
13. The parties hereto acknowledge that Federated Investors has
reserved the right to grant the non-exclusive use of the name "Fortress"
or any derivative thereof to any other investment company, investment
adviser, distributor or other business enterprise, and to withdraw from
the Fund the use of the name "Fortress." The name "Fortress" will
continue to be used by the Fund so long as such use is mutually
agreeable to Federated Investors and the Fund.
IN WITNESS WHEREOF, the parties have caused this Contract to be
executed on their behalf by their duly authorized officers and their
seals to be affixed hereto this 30th day of May, 1990.
Attest: FEDERATED MANAGEMENT
/s/John W. McGonigle By:/s/Edward C. Gonzales
Secretary Vice
President
Attest: FORTRESS UTILITY FUND, INC.
/s/John W. McGonigle By:/s/Edward C. Gonzales
Secretary Vice
President
-1-
Exhibit 6 (i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-
K
FORTRESS UTILITY FUND, INC.
DISTRIBUTOR'S CONTRACT
This Agreement is entered into this 30th day of May, 1990, between
FORTRESS UTILITY FUND, INC. (the "Fund"), a Maryland corporation, and
FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania corporation.
In consideration of the mutual convenants hereinafter contained,
it is hereby agreed by and among the parties hereto as follows:
1. The Fund hereby appoints FSC its agent to sell and
distribute shares of the Fund ("Shares") at the current offering price
thereof as described and set forth in the current prospectus of the
Fund.
2. The sale of Shares may be suspended with or without prior
notice whenever in the judgment of the Fund it is in its best interest
to do so.
3. Neither FSC nor any other person is authorized by the Fund
to give any information or to make any representation relative to the
Shares other than those contained in the Registration Statement or
Prospectus and Statement of Additional Information filed with the
Securities and Exchange Commission as the same may be amended from time
to time or in any supplemental information Fund. FSC agrees that any
other information or representations, other than those specified above
which it or any dealer or other person who purchases Shares through FSC
may make in connection with the offer or sale of Shares, shall be made
entirely without liability on the part of the Fund. FSC agrees that in
offering or selling Shares as agent of the Fund, it will, in all
respects, duly conform to all applicable state and Federal laws and the
rules and regulations of the National Association of Securities Dealers,
Inc., including its Rules of Fair Practice. FSC will submit to the Fund
copies of all sales literature before using the same and will not use
such sales literature if disapproved by the Fund.
4. This Agreement shall continue in effect for two years from
the date of its execution and thereafter for successive periods of one
year if such continuance is approved at least annually by the Directors
of the Fund including a majority of the Directors of the Fund who are
not parties to this Agreement or interested persons of any such party
(other than as Directors of the Fund) cast in person at a meeting called
for that purpose. This Agreement may be terminated at any time by
mutual consent of the Fund and FSC.
5. This Agreement may not be assigned by FSC and shall
automatically terminate in the event of any assignment as defined in the
Investment Company Act of 1940, provided, however, that FSC may employ
such other person, persons, corporation or corporations as it shall
determine in order to assist in it carrying out its duties under this
Agreement.
6. FSC shall not be liable to the Fund or any shareholder of
the Fund 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 by this Agreement.
7. This Agreement may be amended at any time by mutual
agreement in writing of all the parties hereto, provided that such
amendment is approved by the Directors of the Fund including a majority
of the Directors of the Fund who are not parties to this Agreement or
interested persons of any such party (other than as Directors of the
Fund) cast in person at a meeting called for that purpose.
8. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
9. (a) Subject to the conditions set forth below, the Fund
agrees to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of
1933 and Section 20 of the Securities Exchange Act of 1934, as amended,
against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or the
Prospectus and Statement of Additional Information (as from time to time
amended and supplemented) or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make
the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Fund with respect to FSC by or on behalf of FSC
expressly for use in the Registration Statement or Prospectus and
Statement of Additional Information, or any amendment or supplement
thereof.
(b) If any action is brought against FSC or any
controlling person thereof in respect of which indemnity may be sought
against the Fund pursuant to subsection (a), FSC shall promptly notify
the Fund in writing of the institution of such action and the Fund shall
assume the defense of such action, including the employment of counsel
selected by the Fund and payment of expenses. FSC or any such
controlling person thereof shall have the right to employ separate
counsel in any such case, but the fees and expenses of such counsel
shall have been authorized in writing by the Fund in connection with the
defense of such action or the Fund shall not have employed counsel to
have charge of the defense of such action, in any of which events such
fees and expenses shall be borne by the Fund. Anything in this
paragraph to the contrary notwithstanding, the Fund shall not be liable
for any settlement of any such claim or action effected without its
written consent. The Fund agrees promptly to notify FSC of the
commencement of any litigation or proceedings against the Fund or any of
its officers or Directors or controlling persons in connection with the
issue and sale of Shares or in connection with such Registration
Statement or Prospectus and Statement of Additional Information.
(c) FSC agrees to indemnify and hold harmless the Fund,
each of its Directors, each of its officers who have signed the
Registration Statement and each other person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933, but
only with respect to statements or omissions, if any, made in the
Registration Statement or Prospectus and Statement of Additional
Information or any amendment or supplement thereof in reliance upon, and
in conformity with, information furnished to the Fund with respect to
FSC by or on behalf of FSC expressly for use in the Registration
Statement or Prospectus and Statement of Additional Information or any
amendment or supplement thereof. In case any action shall be brought
against the Fund or any other person so indemnified based on the
Registration Statement or Prospectus and Statement of Additional
Information, or any amendment or supplement thereof, and in respect of
which indemnity may be sought against FSC, FSC shall have the rights and
duties given to the Fund, and the Fund and each other person so
indemnified shall have the rights and duties given to FSC by the
provisions of subsection (b) above.
(d) Nothing herein contained shall be deemed to protect
any person against liability to the Fund or its shareholders to which
such person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the duties of such
person or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Agreement.
(e) Insofar as indemnification for liabilities may be
permitted pursuant to Section 17 of the Investment Company Act of 1940
for FSC or Directors, officers and controlling persons of the Fund by
the Fund pursuant to this Agreement, the Fund is aware of the positions
of the Securities and Exchange Commission as set forth in the Investment
Company Act Release No. IC-11330. Therefore, the Fund undertakes that
in addition to complying with the applicable provisions of this
Agreement, in the absence of a final decision on the merits by a court
or other body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence of such a
decision, a reasonable determination based upon factual review has been
made (i) by a majority vote of a quorum of non-party Directors who are
not interested persons of the Fund or (ii) by independent legal counsel
in a written opinion that the indemnitee was not liable for an act of
willful misfeasance, bad faith, gross negligence or reckless disregard
of duties. The Fund further undertakes that advancement of expenses
incurred in the defense of a proceeding (upon undertaking for repayment
unless it is ultimately determined that indemnification is appropriate)
against FSC or an officer, Director or controlling person of the Fund
will not be made absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his undertaking;
(ii) the Fund is insured against losses arising by reason of any lawful
advances; or (iii) a majority of a quorum of disinterested non-party
Directors or independent legal counsel in a written opinion makes a
factual determination that there is reason to believe the indemnitee
will be entitled to indemnification.
IN WITNESS WHEREOF, this Agreement has been duly executed on the
day and year first above written.
ATTEST:
/s/ S. Elliott Cohen /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST:
/s/ John W. McGonigle /s/ Edward C. Gonzales
Secretary Vice President
(SEAL)
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. 9
2.10 Payments for Repurchases or Redemptions of Shares of a Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public Accountants/Auditors 16
6. Reports to Trust by Independent Public Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Trust"), which may be Massachusetts
business trusts or Maryland corporations or have such other form of
organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Trust, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian", and FEDERATED SERVICES COMPANY, a Delaware business trust
company, having its principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets of
each of the Funds of the Trust. Except as otherwise expressly provided
herein, the securities and other assets of each of the Funds shall be
segregated from the assets of each of the other Funds and from all other
persons and entities. The Trust will deliver to the Custodian all
securities and cash owned by the Funds and all payments of income,
payments of principal or capital distributions received by them with
respect to all securities owned by the Funds from time to time, and the
cash consideration received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from time
to time. The Custodian shall not be responsible for any property of the
Funds held or received by the Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or
liability to the Trust or any of the Funds on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian
has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic
physical inspections of certificates representing stocks, bonds and
other securities held by it under this Contract in such manner as
the Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. With respect to
securities held by any agent appointed pursuant to Section 2.11
hereof, and with respect to securities held by any sub-custodian
appointed pursuant to Section 1 hereof, the Custodian may rely upon
certificates from such agent as to the holdings of such agent and
from such sub-custodian as to the holdings of such sub-custodian,
it being understood that such reliance in no way relieves the
Custodian of its responsibilities under this Contract. The
Custodian will promptly report to the Trust the results of such
inspections, indicating any shortages or discrepancies uncovered
thereby, and take appropriate action to remedy any such shortages
or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own failure
to act in accordance with the standard of reasonable care or
any higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by
the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust, transferred
through a Securities System in accordance with Section 2.12
hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing already
made, further securities may be released for the purpose;
(12)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any agreement
among the Trust or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
in satisfaction of requests by holders of Shares for repurchase
or redemption; and
(15)For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian
(other than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Trust has authorized in writing
the appointment of a nominee to be used in common with other
registered investment companies affiliated with the Fund, or in the
name or nominee name of any agent appointed pursuant to Section
2.11 or in the name or nominee name of any sub-custodian appointed
pursuant to Section 1. All securities accepted by the Custodian on
behalf of a Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of each Fund, other than cash maintained in a joint
repurchase account with other affiliated funds pursuant to Section
2.14 of this Contract or by a particular Fund in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940 Act").
Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian
or in such other banks or trust companies as it may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian for the
Fund and shall be withdrawable by the Custodian only in that
capacity. If requested by the Trust, the Custodian shall furnish
the Trust, not later than twenty (20) days after the last business
day of each month, an internal reconciliation of the closing
balance as of that day in all accounts described in this section to
the balance shown on the daily cash report for that day rendered to
the Trust.
2.5 Payments for Shares. The Custodian shall make such arrangements
with the Transfer Agent of each Fund, as will enable the Custodian
to receive the cash consideration due to each Fund and will deposit
into each Fund's account such payments as are received from the
Transfer Agent. The Custodian will provide timely notification to
the Trust and the Transfer Agent of any receipt by it of payments
for Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from time
to time by the Trust and the Custodian in the amount of checks,
clearing house funds, and other non-federal funds received in
payment for Shares of the Funds which are deposited into the Funds'
accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to each
Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. The collection
of income due the Funds on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of
the Trust. The Custodian will have no duty or responsibility
in connection therewith, other than to provide the Trust with
such information or data as may be necessary to assist the
Trust in arranging for the timely delivery to the Custodian of
the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever income
due on securities is not collected in due course and will
provide the Trust with monthly reports of the status of past
due income unless the parties otherwise agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options
on futures contracts for the account of a Fund but only (a)
against the delivery of such securities, or evidence of title
to futures contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the United States or
abroad which is qualified under the 1940 Act to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer, (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.12 hereof or (c) in
the case of repurchase agreements entered into between the
Trust and any other party, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and certified by its
Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment
is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be
made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written instructions from the Trust to so pay in advance,
the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and any applicable
votes of the Board of the Trust pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of shares of such Fund who
have delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation through
bank drafts, automated clearinghouse facilities, or by other means.
In connection with the redemption or repurchase of Shares of the
Funds, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders.
2.11Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the 1940 Act and
any applicable state law or regulation, to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as
the Custodian may from time to time direct; provided, however, that
the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in
accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall
identify by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the
account of each Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities
sold for the account of a Fund upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the
account of a Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Trust at its
request. Upon request, the Custodian shall furnish the Trust
confirmation of each transfer to or from the account of a Fund
in the form of a written advice or notice and shall furnish to
the Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
a Fund.
(4) The Custodian shall provide the Trust with any report obtained
by the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage
to a Fund resulting from use of the Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their employees or
from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities
System; at the election of the Trust, it shall be entitled to
be subrogated to the rights of the Custodian with respect to
any claim against the Securities System or any other person
which the Custodian may have as a consequence of any such loss
or damage if and to the extent that a Fund has not been made
whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence
in making use of any Securities System.
2.13Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or
the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions for a
Fund, (ii) for purpose of segregating cash or government securities
in connection with options purchased, sold or written for a Fund or
commodity futures contracts or options thereon purchased or sold
for a Fund, (iii) for the purpose of compliance by the Trust or a
Fund with the procedures required by any release or releases of the
SEC relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board or of the Executive Committee signed by an officer of
the Trust and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account
and declaring such purposes to be proper corporate purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any
assets of a Fund and any affiliated funds which are subject to
joint repurchase transactions in an account established solely for
such transactions for the Fund and its affiliated funds. For
purposes of this Section 2.14, "affiliated funds" shall include all
investment companies and their portfolios for which subsidiaries or
affiliates of Federated Investors serve as investment advisers,
distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of segregation set
forth in Section 2.1 shall be deemed to be waived with respect to
such assets.
2.15Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it
and in connection with transfers of securities.
2.16Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than
in the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Fund and the maturity of futures contracts purchased or sold
by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Trust
all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer. If the
Trust desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Trust shall
notify the Custodian in writing at least three business days prior
to the date on which the Custodian is to take such action.
However, the Custodian shall nevertheless exercise its best efforts
to take such action in the event that notification is received
three business days or less prior to the date on which action is
required.
2.18Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type
of transaction involved. Oral instructions will be deemed to be
Proper Instructions if (a) the Custodian reasonably believes them
to have been given by a person previously authorized in Proper
Instructions to give such instructions with respect to the
transaction involved, and (b) the Trust promptly causes such oral
instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of the Trust accompanied by a detailed
description of procedures approved by the Board, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board
and the Custodian are satisfied that such procedures afford
adequate safeguards for a Fund's assets.
2.19Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust in such form that it may be
allocated to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
each Fund except as otherwise directed by the Trust.
2.20Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or
other instrument or paper reasonably believed by it to be genuine
and to have been properly executed on behalf of a Fund. The
Custodian may receive and accept a certified copy of a vote of the
Board of the Trust as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any
determination of or any action by the Board pursuant to the
Declaration of Trust/Articles of Incorporation as described in such
vote, and such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Trust of any
receipt of cash, income or payments to the Trust and the release of
cash or payment by the Trust.
3. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Trust to keep the
books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in writing
to do so by the Trust, shall itself keep such books of account and/or
compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of a Fund as described in the
Fund's currently effective prospectus and Statement of Additional
Information ("Prospectus") and shall advise the Trust and the Transfer
Agent daily of the total amounts of such net income and, if instructed
in writing by an officer of the Trust to do so, shall advise the
Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per share
and the daily income of a Fund shall be made at the time or times
described from time to time in the Fund's currently effective
Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, and specifically including identified cost records used for
tax purposes. All such records shall be the property of the Trust and
shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of
the Trust and employees and agents of the SEC. In the event of
termination of this Contract, the Custodian will deliver all such
records to the Trust, to a successor Custodian, or to such other person
as the Trust may direct. The Custodian shall supply daily to the Trust
a tabulation of securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions
from each Fund's independent public accountants/auditors with respect to
its activities hereunder in connection with the preparation of the
Fund's registration statement, periodic reports, or any other reports to
the SEC and with respect to any other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Trust, to provide reasonable assurance
that any material inadequacies would be disclosed by such examination
and, if there are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice, provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and without
negligence. Subject to the limitations set forth in Section 15 hereof,
the Custodian shall be kept indemnified by the Trust but only from the
assets of the Fund involved in the issue at hand and be without
liability for any action taken or thing done by it in carrying out the
terms and provisions of this Contract in accordance with the above
standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the Trust may
be asked to indemnify or save the Custodian harmless, the Trust shall be
fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the Custodian
will use all reasonable care to identify and notify the Trust promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification. The Trust shall have
the option to defend the Custodian against any claim which may be the
subject of this indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the Trust shall
take over complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it shall
seek indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the Trust
will be asked to indemnify the Custodian except with the Trust's prior
written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action
may, in the reasonable opinion of the Custodian, result in the Custodian
or its nominee assigned to a Fund being liable for the payment of money
or incurring liability of some other form, the Custodian may request the
Trust, as a prerequisite to requiring the Custodian to take such action,
to provide indemnity to the Custodian in an amount and form satisfactory
to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee from
and against all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) (referred to herein as authorized
charges) incurred or assessed against it or its nominee in connection
with the performance of this Contract, except such as may arise from it
or its nominee's own failure to act in accordance with the standard of
reasonable care or any higher standard of care which would be imposed
upon the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract. To
secure any authorized charges and any advances of cash or securities
made by the Custodian to or for the benefit of a Fund for any purpose
which results in the Fund incurring an overdraft at the end of any
business day or for extraordinary or emergency purposes during any
business day, the Trust hereby grants to the Custodian a security
interest in and pledges to the Custodian securities held for the Fund by
the Custodian, in an amount not to exceed 10 percent of the Fund's gross
assets, the specific securities to be designated in writing from time to
time by the Trust or the Fund's investment adviser. Should the Trust
fail to make such designation, or should it instruct the Custodian to
make advances exceeding the percentage amount set forth above and should
the Custodian do so, the Trust hereby agrees that the Custodian shall
have a security interest in all securities or other property purchased
for a Fund with the advances by the Custodian, which securities or
property shall be deemed to be pledged to the Custodian, and the written
instructions of the Trust instructing their purchase shall be considered
the requisite description and designation of the property so pledged for
purposes of the requirements of the Uniform Commercial Code. Should the
Trust fail to cause a Fund to repay promptly any authorized charges or
advances of cash or securities, subject to the provision of the second
paragraph of this Section 8 regarding indemnification, the Custodian
shall be entitled to use available cash and to dispose of pledged
securities and property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery
or mailing; provided, however that the Custodian shall not act under
Section 2.12 hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of the Trust
has approved the initial use of a particular Securities System as
required in each case by Rule 17f-4 under the 1940 Act; provided
further, however, that the Trust shall not amend or terminate this
Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust/Articles of
Incorporation, and further provided, that the Trust may at any time by
action of its Board (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the appropriate banking
regulatory agency or upon the happening of a like event at the direction
of an appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the Trust,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form
for transfer, all securities then held by it hereunder for each Fund and
shall transfer to separate accounts of the successor custodian all of
each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the 1940 Act, (delete
"doing business ... Massachusetts" unless SSBT is the Custodian) doing
business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds
and other properties held by the Custodian and all instruments held by
the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of
such successor custodian all of each Fund's securities held in any
Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing
to failure of the Trust to procure the certified copy of the vote
referred to or of the Board to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract relating
to the duties and obligations of the Custodian shall remain in full
force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Trust may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to
be an amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Trust or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Trust of those Trusts
which are business trusts and agrees that the obligations and
liabilities assumed by the Trust and any Fund pursuant to this Contract,
including, without limitation, any obligation or liability to indemnify
the Custodian pursuant to Section 8 hereof, shall be limited in any case
to the relevant Fund and its assets and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the
relevant Fund, from any other Fund or its shareholders or from the
Trustees, Officers, employees or agents of the Trust, or any of them.
In addition, in connection with the discharge and satisfaction of any
claim made by the Custodian against the Trust, for whatever reasons,
involving more than one Fund, the Trust shall have the exclusive right
to determine the appropriate allocations of liability for any such claim
between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti, Jr.___________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
12/1/94 Fortress Utility Fund, Inc.
</TABLE>
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "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 may desire to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company is willing to furnish such services; and
WHEREAS, the Trust may desire to appoint the Company as its transfer agent,
dividend disbursing agent if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved list
of qualified banks if so indicated on Exhibit 1, and the Company desires to
accept such appointment; and
WHEREAS, from time to time the 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's 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 using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to
exercise reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received from
such agents and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net asset value
per share of such Fund or Class when the calculations are based upon
such prices. All of the above sources of prices used as described are
deemed by the Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the 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;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to
the Trust such records upon the Trust's request;
G. At the request of the Trust, prepare various reports or other financial
documents required by federal, state and other applicable laws and
regulations; and
H. Such other similar services as may be reasonably requested by the
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
agreed upon from time to time between the parties hereto. Such fees do
not include out-of-pocket disbursements of the Company for which the
Funds shall reimburse the Company upon receipt of a separate invoice.
Out-of-pocket disbursements shall include, but shall not be limited
to, the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees
of 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 compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the 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 conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in
each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the 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 agreed upon
between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the 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 same fees for each such Class or sub-component the same as if
each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section Two may
be assigned by either party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. The Company may without further consent on the part of the 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
C. 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:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set forth
as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the benefit
of the 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;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services provided by
the Custodians; and
F. periodically provide to the 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 agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A 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 agreed upon between the
parties, as may be added to or amended from time to time. In addition,
any other expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Trust and/or the Funds and a duly authorized officer of
the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this Agreement,
the 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. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the
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.
B. 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, Adviser, Sub-adviser or
other party contracted by or approved by the Trust or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase,
redemption or transfer of Shares and Shareholder account
information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Trust of Fund for use in
the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust or the
Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered
in such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties of failure to
meet the standard of care set forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the 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
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
12/1/94 Fortress Utility Fund, Inc.
FEDERATED SERVICES COMPANY provides the following services:
Fund Accounting
Shareholder Recordkeeping
Custody Services Procurement
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FORTRESS UTILITY FUND, INC.
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> May-31-1995
<PERIOD-END> May-31-1995
<INVESTMENTS-AT-COST> 724,585,478
<INVESTMENTS-AT-VALUE> 776,432,839
<RECEIVABLES> 10,631,479
<ASSETS-OTHER> 30,873
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 787,095,191
<PAYABLE-FOR-SECURITIES> 4,448,250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,827,101
<TOTAL-LIABILITIES> 8,275,351
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 740,892,364
<SHARES-COMMON-STOCK> 61,388,625
<SHARES-COMMON-PRIOR> 72,569,867
<ACCUMULATED-NII-CURRENT> 14,860,692
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (28,780,577)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,847,361
<NET-ASSETS> 778,819,840
<DIVIDEND-INCOME> 43,071,568
<INTEREST-INCOME> 3,304,919
<OTHER-INCOME> 0
<EXPENSES-NET> 9,246,035
<NET-INVESTMENT-INCOME> 37,130,452
<REALIZED-GAINS-CURRENT> (22,913,166)
<APPREC-INCREASE-CURRENT> 47,783,353
<NET-CHANGE-FROM-OPS> 62,000,639
<EQUALIZATION> (3,344,167)
<DISTRIBUTIONS-OF-INCOME> 40,393,334
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,455,561
<NUMBER-OF-SHARES-REDEEMED> 22,318,428
<SHARES-REINVESTED> 1,681,625
<NET-CHANGE-IN-ASSETS> (113,670,399)
<ACCUMULATED-NII-PRIOR> 24,046,071
<ACCUMULATED-GAINS-PRIOR> (4,617,342)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,080,157
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,174,161
<AVERAGE-NET-ASSETS> 813,630,317
<PER-SHARE-NAV-BEGIN> 12.300
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> 0.440
<PER-SHARE-DIVIDEND> 0.610
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.690
<EXPENSE-RATIO> 114
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
