1933 Act File No. 33-13388
1940 Act File No. 811-5114
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. 10 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 15 X
LIBERTY 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 April 30,1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on April 15, 1994; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of LIBERTY UTILITY FUND,
INC., consisting of two classes of shares: (a) Class A Shares and (b) Class
C Shares, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
Rule 404(c) Cross Reference)
Item 1. Cover Page (a & b) Cover Page.
Item 2. Synopsis (a & b) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (a & b) Financial Highlights
Item 4. General Description of
Registrant (a & b) Performance Information;
General Information; Liberty
Family of
Funds; Liberty Family Retirement
Program; Investment Information;
Investment Objectives; Investment
Policies; Investment Risks;
Investment
Limitations; Potrfolio Turnover;
Other
Classes of Shares.
Item 5. Management of the Fund (a & b) Fund Information; Management
of the Fund; (a) Distribution of
Class
A Shares; (b) Distribution of
Class C
Shares; (b) Distribution Plan; Other
Payments to Financial Institutions;
Administration of the Fund;
Shareholder Services Plan; Brokerage
Transactions; (a) Expenses of the
Fund
and Class A Shares; (b) Expenses of
the Fund and Class C Shares.
Item 6. Capital Stock and Other
Securities (a & b) Dividends; Capital Gains;
Shareholder Information; Voting
Rights; Tax Information; Federal
Income Tax; Pennsylvania Corporate
and Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered (a & b) Net Asset Value; (a)
Investing
in Class A Shares; (b) Investing in
Class C Shares; (a & b) Share
Purchases; Minimum Investment
Required; What Shares Cost; (a)
Reducing the Sales Charge; (a & b)
Systematic Investment Program;
Certificates and Confirmations;
Retirement Plans; Exchange
Privilege;
Requirements for Exchange; Tax
Consequences; Making an Exchange (a)
Reduced Sales Charge.
Item 8. Redemption or Repurchase (a) Redeeming Class A Shares; (b)
Redeeming Class C Shares Contingent
Deferred Sales Charge; (a & b)
Through
a Financial Institution; Directly
from
the Fund; 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 Objectives and Policies.
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;
Administrative Arrangements;
Administrative Services.
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.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Distribution of Shares; Distribution
Plan (Class C Shares Only).
Item 22. Calculation of Performance
Data Total Return; Yield; Performance
Comparisons.
Item 23. Financial Statements Included in Part B.
LIBERTY UTILITY FUND, INC.
CLASS A SHARES
PROSPECTUS
The Class A Shares of Liberty Utility Fund, Inc. (the "Fund") offered by this
prospectus represent interests in the Fund which is an open-end, diversified
management investment company (a mutual fund).
The Fund invests in a diversified portfolio comprised primarily of equity
securities to achieve current income and long-term growth of income. Capital
appreciation is a secondary objective.
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 Class A Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares and Class C Shares dated April 30, 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS A SHARES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
Liberty Family Retirement Program 4
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objectives 4
Investment Policies 4
Repurchase Agreements 5
Lending of Portfolio Securities 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 6
Covered Call Options 6
Securities of Foreign Issuers 6
Portfolio Turnover 6
Investment Risks 6
Reducing Risks of Utility Securities 7
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN CLASS A SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly from the Distributor 9
By Wire 9
Minimum Investment Required 9
What Shares Cost 9
Dealer Concession 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 11
Reinvestment Privilege 11
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 11
Concurrent Purchases 11
Systematic Investment Program 11
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Retirement Plans 12
EXCHANGE PRIVILEGE 12
- ------------------------------------------------------
Reduced Sales Charge 12
Requirements for Exchange 13
Tax Consequences 13
Making an Exchange 13
Telephone Instructions 13
REDEEMING CLASS A SHARES 14
- ------------------------------------------------------
Through a Financial Institution 14
Directly from the Fund 14
By Telephone 14
By Mail 14
Signatures 15
Systematic Withdrawal Program 15
Accounts with Low Balances 15
FUND INFORMATION 16
- ------------------------------------------------------
Management of the Fund 16
Board of Directors 16
Investment Adviser 16
Advisory Fees 16
Adviser's Background 16
Other Payments to Financial Institutions 16
Distribution of Class A Shares 17
Administration of the Fund 17
Administrative Services 17
Shareholder Services Plan 17
Custodian 18
Transfer Agent and Dividend
Disbursing Agent 18
Legal Counsel 18
Independent Auditors 18
Brokerage Transactions 18
Expenses of the Fund and Class A Shares 18
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
Pennsylvania Corporate and Personal
Property Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS A SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 4.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.58%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.54%
Shareholder Servicing Fee............................................... 0.25%
Total Class A Shares Operating Expenses(2).................................. 1.12%
</TABLE>
(1) 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%.
(2) The Total Class A Shares Operating Expenses would have been 1.29% absent the
voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE " INVESTING IN CLASS A SHARES" AND " FUND INFORMATION."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period........................................ $ 56 $79 $ 104 $175
</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.
The information set forth in the foregoing table and example relates only to
Class A Shares of the Fund. The Fund also offers another class of shares called
Class C Shares. Class A Shares and Class C Shares are subject to certain of the
same expenses; however, Class C Shares are subject to a 12b-1 fee of 0.75% and a
contingent deferred sales charge of 1.00%, but are not subject to a sales load.
See "Other Classes of Shares."
LIBERTY UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated April 13, 1994, on the Fund's Financial Statements
for the year ended February 28, 1994, is included in the Combined Statement of
Additional Information. 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 FEBRUARY 28, OR 29
------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988*
-------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.29 $11.03 $10.13 $9.82 $9.15 $9.15 $9.30
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.60 0.58 0.68 0.71 0.71 0.72 0.55
- -------------------------------------
Net realized and unrealized gain
(loss) on investments -- 1.44 0.92 0.43 0.79 (0.02) (0.31)
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
Total from investment operations 0.60 2.02 1.60 1.14 1.50 0.70 0.24
- -------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------
Dividends to shareholders from net
investment income (0.61) (0.66) (0.64) (0.70) (0.76) (0.70) (0.39)
- -------------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.04) (0.10) (0.06) (0.13) (0.07) -- --
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
Total distributions (0.65) (0.76) (0.70) (0.83) (0.83) (0.70) (0.39)
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
NET ASSET VALUE, END OF PERIOD $12.24 $12.29 $11.03 $10.13 $9.82 $9.15 $9.15
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
TOTAL RETURN** 4.93% 19.26% 16.48% 12.41% 16.72% 8.00% 3.25%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.12% 1.04% 1.05% 1.02% 1.02% 1.00% 1.56%(b)
- -------------------------------------
Net investment income 4.81% 5.98% 6.31% 7.41% 7.17% 8.04% 8.24%(b)
- -------------------------------------
Expense waiver/reimbursement(a) 0.17% 0.01% 0.19% 0.51% 0.74% 0.40% 0.38%(b)
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000
omitted) $877,513 $739,511 $375,656 $125,599 $48,050 $410,575 $52,947
- -------------------------------------
Portfolio turnover rate 24% 18% 35% 45% 37% 34% 17%
- -------------------------------------
</TABLE>
* Reflects operations for the period from June 5, 1987 through February 29,
1988. For the period from the start of business, May 28, 1987 to June 4,
1987, net investment income aggregating $0.012 per share ($124) was
distributed to the Fund's Investment Adviser.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated February 28, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. From the date of the Fund's initial public offering in 1987 until May 27,
1988, the Fund was operated as a closed-end investment company. On May 16, 1988,
the shareholders of the Fund approved the conversion of the Fund from a
closed-end investment company to an open-end investment company. Shareholders of
the Fund, at a meeting held January 18, 1990, approved the Fund's name change
from Progressive Income Equity Fund, Inc. to Liberty Utility Fund, Inc. The
Fund's address is Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Articles of Incorporation permit the Fund to offer separate
series of shares representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. With respect
to the Fund, as of the date of this prospectus, the Board of Directors (the
"Directors") has established two classes of shares, known as Class A Shares and
Class C Shares. This prospectus relates only to Class A Shares ("Shares") of the
Fund.
Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. A minimum
initial investment of $500 is required, unless the investment is in a retirement
account, in which case the minimum investment is $50.
Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value. The Fund's current net asset value and offering
price can be found in the mutual funds section of local newspapers under
"Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
- American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
- Capital Growth Fund (Liberty Shares Class only), providing appreciation
of capital primarily through equity securities;
- Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
- International Equity Fund, providing long-term capital growth and income
through international securities;
- International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
- Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
- Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;
- Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
- Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities; and
- Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may
readily be made between investment options selected by the employer or a plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc.; Capital Growth Fund; Stock and Bond Fund, Inc.;
Fund for U.S. Government Securities, Inc.; International Equity Fund;
International Income Fund; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; and Prime Cash Series.
No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The primary investment objectives of the Fund are current income and long-term
growth of income. Capital appreciation is a secondary objective. While there is
no assurance that the Fund will achieve its investment objectives, it endeavors
to do so by following the policies described in this prospectus. The investment
objectives cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The Fund will seek to achieve its investment objectives by investing primarily
in common stocks, preferred stocks, units of participation in master limited
partnerships which are traded on national
securities exchanges, securities convertible into stock, and debt securities
issued by companies in the utilities industry. Under normal conditions, the Fund
will invest at least 65% of its total assets in securities issued by companies
in the utilities industry, which include companies engaged in the production,
transmission or distribution of electric energy or gas, or in communications
facilities such as telephone or telegraph services.
Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or (ii) determined by the investment adviser to be of investment
grade and not rated by either of the aforementioned rating services, or (iii)
the subordinated debt of issuers whose senior debt obligations are deemed to be
investment grade by either of the aforementioned rating services. Downgraded
securities will be evaluated on a case by case basis by the investment adviser.
The investment adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. The Fund's
Directors do not consider this limitation to apply to debt securities of an
issuer convertible into stock of that issuer.
For temporary, defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its agencies
or instrumentalities, commercial paper rated not lower than A-1 by Standard &
Poor's Corporation or Prime-1 by Moody's Investors Service, Inc., or repurchase
agreements.
The investment policies described above cannot be changed without shareholder
approval.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to 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. 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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities, on a short-term or long-term basis, to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than
one-third of its total assets. 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 Directors
and will receive collateral in cash or United States government securities that
will be maintained in an amount equal to at least 100% of the current market
value of the securities loaned.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total
assets in restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objectives and
policies but which are subject to restriction on resale under federal securities
law. To the extent these securities are deemed to be illiquid, the Fund will
limit its purchases together with other securities considered to be illiquid to
15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
COVERED CALL OPTIONS. The Fund may also write call options on all or any portion
of its portfolio to generate income for the Fund. Call options written by the
Fund give the holder the right to buy the underlying securities of the Fund at
the stated exercise price. The Fund will write call options only 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
and sells must be listed on a recognized options exchange. The Fund's investment
in call options shall not exceed 5% of the Fund's total assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may purchase American Depository
Receipts ("ADRs") issued by U.S. Banks as a substitute for direct ownership of
securities of foreign companies in the utilities industry. ADRs are traded in
the United States on stock exchanges and in the over-the-counter markets like
stocks of domestic companies.
The Fund may also purchase securities of foreign issuers in the utilities
industry. While investment in foreign securities is intended to reduce risk by
providing further diversification, such investments involve sovereign risk in
addition to the credit and market risks normally associated with domestic
securities. Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing, and
financial reporting standards and requirements comparable to those applicable to
U.S. companies. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the U.S. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the U.S.). It may be also more difficult to enforce
contractual obligations or obtain court judgments abroad than would be the case
in the United States because of differences in the legal systems. These risks
are carefully considered by the Fund's adviser prior to the purchase of these
securities.
PORTFOLIO TURNOVER. It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
INVESTMENT RISKS
The Fund will attempt to meet its investment objectives by being at least 65%
invested in securities issued by companies in the utility industry. There exist
certain risks associated with the utility industry of which investors in the
Fund should be aware. These include difficulty in earning adequate returns on
investment despite frequent rate increases, restrictions on operations and
increased costs and delays due to governmental regulations, building or
construction delays, environmental regulations, difficulty
of the capital markets in absorbing utility debt and equity securities, and
difficulties in obtaining fuel at reasonable prices.
REDUCING RISKS OF UTILITY SECURITIES. The Fund's investment adviser believes
that the risks of investing in utility securities can be reduced. The
professional portfolio management techniques used by the Fund to attempt to
reduce these risks include credit research. The Fund's investment adviser will
perform its own credit analysis in addition to using recognized rating agencies
and other sources, including discussions with the issuer's management, the
judgment of other investment analysts, and its own informed judgment. The
investment 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 investment adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical costs.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:
- invest more than 25% of its total assets (valued at time of investment)
in securities of companies engaged principally in any one industry other
than the utilities industry, except that this restriction does not apply
to cash or cash items and securities issued or guaranteed by the United
States government or its agencies or instrumentalities;
- invest more than 5% of the value of its total assets in securities of
companies, including their predecessors, which have been in operation for
less than three years;
- invest more than 5% of its total assets (valued at the time of
investment) in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase agreements,
and securities issued or guaranteed by the United States government or
its agencies or instrumentalities;
- acquire more than 10% of the outstanding voting securities of any one
issuer (at the time of acquisition);
- borrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the value
of its net assets, including the amounts borrowed, and pledge up to 10%
of the value of those assets to secure such borrowings. 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;
- lend any of its assets except portfolio securities up to one-third of the
value of its total assets. This shall not prevent the purchase or holding
of corporate bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase
agreements, or other transactions which are permitted by the Fund's
investment objectives and policies;
- 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's investment in put or call options,
straddles, spreads, or any combination thereof shall not exceed 5% of the
Fund's total assets;
- invest more than 5% of its net assets in warrants, not more than 2% of
which can be warrants not listed on recognized exchanges; or
- invest more than 15% of total assets in securities of foreign issuers not
listed on recognized exchanges.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class A Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class A Shares in the liabilities of the Fund and those attributable to the
Class A Shares, and dividing the remainder by the number of Class A Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class C Shares due to the variance in daily net income realized by each class.
Such variance will reflect only accrued net income to which the shareholders of
a particular class are entitled.
INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may, from time to time, offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered received when the
Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by
the financial institution and transmitted to the Fund before 4:00 P.M. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do
so:
- complete and sign the new account form available from the Fund;
- enclose a check made payable to Liberty Utility Fund, Inc.-Class A
Shares; and
- mail both to Liberty Utility Fund, Inc., P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agents bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire once an
account has been established, call the Fund. All information needed will be
taken over the telephone, and the order is considered received when State
Street Bank receives payment by wire. Federal funds should be wired as
follows: State Street Bank and Trust Company, Boston, Massachusetts 02105;
Attention: Mutual Fund Servicing Division; For Credit to: Liberty Utility
Fund, Inc.-Class A Shares; Title or Name of Account; Order Number; and
Account Number. Shares cannot be purchased by wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $500, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
- ------------------------------------------ ----------------------- ---------------------
<S> <C> <C>
Less than $100,000........................ 4.50% 4.71%
$100,000 but less than $250,000........... 3.75% 3.90%
$250,000 but less than $500,000........... 2.50% 2.56%
$500,000 but less than $750,000........... 2.00% 2.04%
$750,000 but less than $1 million......... 1.00% 1.01%
$1 million or more........................ 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 P.M. (Eastern time), Monday through
Friday, or at the close of the New York Stock Exchange, except on: (i) days on
which there are not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no Shares are tendered for redemption and no orders to purchase
Shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Shareholders designated as Liberty Life Members are exempt from sales charges.
No sales charge is imposed for Shares purchased through bank trust departments
or investment advisers registered under the Investment Advisers Act of 1940. In
addition, certain institutions such as insurance companies and certain
associations are exempt from the sales charge for purchases of Shares. However,
investors who purchase Shares through a trust department or investment adviser
may be charged an additional service fee by that institution.
No sales charge is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.
DEALER CONCESSION. For sales of Shares, a dealer will normally receive up to
90% of the applicable sales charge. Any portion of the sales charge which is not
paid to a dealer will be retained by the distributor. However, the distributor,
in its sole discretion, may uniformly offer to pay all dealers selling Shares
additional amounts, all or a portion of which may be paid from the sales charge
it normally retains or any other source available to it. Such additional
payments, if accepted by the dealer, may be in the form of cash or promotional
incentives, and will be predicated upon the amount of Shares or of the Liberty
Family of Funds sold by the dealer.
The sales charge 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 charge 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 purchase of Shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege;
- purchases with proceeds from redemptions of unaffiliated mutual fund
shares; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
of Shares made on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of 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 $90,000 and he
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 3.75%,
not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Shares are already owned or that purchases are
being combined. The Fund will reduce the sales charge after it confirms the
purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Shares in the funds in the Liberty Family of Funds over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter may be dated as of a prior date to include any purchases made within the
past 90 days toward the dollar fulfillment of the letter of intent. Prior trade
prices will not be adjusted.
The 4.5% 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 is
not purchased. In this event, an appropriate number of escrowed Shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If Shares in the Fund have been redeemed, the
shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing, or by
his financial institution, of the reinvestment in order to eliminate a sales
charge. If the shareholder redeems his Shares, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. (This does not include shares of a mutual fund which were or
would be subject to a contingent deferred sales charge upon redemption.) The
purchase must be made within 60 days of the redemption, and Federated Securities
Corp. must be notified by the investor in writing, or by his financial
institution, at the time the purchase is made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $30,000 in one
of the other Liberty Funds with a sales charge, and $70,000 in this Fund, the
sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing, or by his financial institution, at the
time the concurrent purchases are made. The Fund will reduce the sales charge
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 in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined
after an order is received by the transfer agent State Street Bank, plus the
applicable sales charge. A shareholder may apply for participation in this
program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments on the new
account form or by writing to the Fund, dividends are automatically reinvested
in additional Shares on payment dates at the ex-dividend date net asset value
without a sales charge.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
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
the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds. They may also exchange into
certain other funds for which affiliates of Federated Investors serve as
principal underwriter ("Federated Funds") . Certain Federated Funds are sold
with a sales charge different from that of the Fund or with no sales charge;
exchanges into these Federated Funds are made at net asset value plus the
difference between the Fund's sales charge already paid and any sales charge of
the Federated Fund into which the Shares are to be exchanged, if higher. Neither
the Fund nor any of the funds in the Liberty Family of Funds imposes any
additional fees on exchanges. Participants in a plan under the Liberty Family
Retirement Program may exchange all or some of their Shares for Class A shares
of other funds offered under the plan at net asset value without a contingent
deferred sales charge ("CDSC").
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction of the sales
charge, Federated Securities Corp. must be notified in writing by the
shareholder or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $500. Before the exchange, the shareholder must receive a prospectus
of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. This privilege is not available where
redeemed Shares are assessed a CDSC or similar charge. 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. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a short-term or long-term capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with Federated Services Company. If the instructions are given by a
broker, a telephone authorization form completed by the broker must be on file
with Federated Services Company. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registration.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. Such
instructions will be processed as of 4:00 P.M. (Eastern time) and must be
received by transfer agent before that time for Shares to be exchanged that day.
Shareholders exchanging into a fund will not receive any dividend that is
payable to shareholders of record on that date. This privilege may be modified
or terminated at any time.
REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Redemptions can be made
through a financial institution or directly from the Fund. Redemption requests
must be received in proper form. Redemptions of Shares held through the Liberty
Family Retirement Program will be governed by the requirements of the respective
plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at their net asset value 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.
DIRECTLY FROM THE FUND
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 Fund 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, such as redeeming by mail, should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Fund name and class
of shares' name, the account number, and the Share or dollar amount requested,
and should be signed exactly as the Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this program
should not be considered as yield or income on the shareholder's investment in
Shares. To be eligible to participate in this program, a shareholder must have
an account value of at least $10,000. A shareholder may apply for participation
in this program through his financial institution. Due to the fact that Shares
are sold with a sales charge, it is not advisable for shareholders to be
purchasing Shares while participating in this program.
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
$500. This requirement does not apply, however, if the balance falls below $500
because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. The Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Passport
Research Ltd., the Fund's investment adviser (the "Adviser"), subject to
direction by the Directors. Passport Research, Ltd. is located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Adviser continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments, for which it receives an annual
fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Passport Research, Ltd. is a Pennsylvania limited
partnership organized in 1981. Federated Advisers is the general partner of
the Adviser and has a 50.5% interest in the Adviser. Federated Advisers is
a subsidiary of Federated Investors. Edward D. Jones & Co. is the limited
partner of the Adviser and has a 49.5% interest in the investment Adviser.
Passport Research, Ltd. has also acted as investment adviser for Edward D.
Jones & Co. Daily Passport Cash Trust since 1982. Employees of the Adviser
are also employees of other advisers which are affiliates of Federated
Investors.
Federated Investors, which was founded in 1956 as Federated Investors,
Inc., develops and manages mutual funds primarily for the financial
industry. Federated Investors' track record of competitive performance and
its disciplined, risk averse investment philosophy serve approximately
3,500 client institutions nationwide. Through these same client
institutions, individual shareholders also have access to this same level
of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since May, 1990.
Mr. Wiles joined Federated Investors in 1990 and has been a Vice President
of the Adviser since 1992. Mr. Wiles served as Assistant Vice President of
the Adviser from 1990 until 1992. Mr. Wiles was a portfolio manager at
Mellon Bank from 1986 until 1990. Mr. Wiles is a Chartered Financial
Analyst and received his M.B.A. in Finance from Cleveland State University.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the Adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the
distributor or Adviser from their assets, and will not be made from the
assets of the Fund or by the assessment of a sales charge on Shares.
In addition, Federated Securities Corp. will pay financial institutions an
amount equal to .50 of 1% of the net asset value of Shares purchased by
their clients or customers under the Liberty Family Retirement Program.
(Such payments are subject to a reclaim from the financial institution
should the assets leave the program within 12 months after purchase.) These
payments will be made directly by the distributor from ita assets, and will
not be made from assets of the Fund or by the assessment of a sales charge
on Shares.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares. Federated
Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to operate
the Fund. FAS, provides these at an annual rate which relates to 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>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares. FAS may
choose voluntarily to waive a portion of its fee.
The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which Federated
Shareholder Services will either perform shareholder services directly or will
select Financial Institutions to perform shareholder services. Financial
Institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the
"Services Plan") with respect to Class A Shares and Class C Shares. Under which
it may make payments up to 0.25 of 1% of the average daily net asset value of
the Fund to obtain certain personal services for shareholders and maintenance of
shareholder accounts ("shareholder services"). The Fund has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a subsidiary
of Federated Investors, under which Federated Shareholder Services will either
perform shareholder services
directly or will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
In addition to receiving payments under the Services Plan, financial
institutions may be compensated by the distributor, or affiliates thereof, for
providing administrative support services to holders of Shares. These payments
will be made directly by the distributor and will not be made from the assets of
the Fund.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is transfer
agent for the shares of the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
One Oxford Centre, Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
EXPENSES OF THE FUND AND CLASS A SHARES
Holders of Shares pay their allocable portion of Fund expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; Directors' fees; auditors' fees; the cost of meetings
of Directors; legal fees of the Fund; association membership dues and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Services Plan. However, the Directors reserve the
right to allocate certain other expenses to holders of Shares as they deem
appropriate ("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Services Plan; printing and
postage expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Directors' fees incurred as a result of issues relating solely to
Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and
distributions are received in cash or as additional Shares. Distributions
representing long-term capital gains, if any, will be taxable to shareholders as
long-term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is subject to Pennsylvania corporate franchise taxes; and
- Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the total return and yield for Class A
Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Class A Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per Share 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
Class A Shares, and therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the CDSC, which, if excluded, would
increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares and
Class C Shares. Because Class C Shares are subject to Rule 12b-1 fees, the total
return and yield for Class A Shares, for the same period, may exceed that of
Class C Shares.
From time to time, the Fund may advertise the performance of Class A Shares
using certain financial publications and/or compare the performance of Class A
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class C Shares, the other
class of shares offered by the Fund, are sold primarily to customers of
financial institutions at net asset value with no initial sales charge. Class C
Shares are distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby
the distributor is paid a fee of up to .75 of 1%, in addition to a shareholder
services fee of .25 of 1% of the Class C Shares' average daily net assets. Class
C Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
The amount of dividends payable to Class A Shares will generally exceed that of
Class C Shares by the difference between Class Expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
LIBERTY UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated April 13, 1994, on the Fund's Financial Statements
for the year ended February 28, 1994, is included in the Combined Statement of
Additional Information. This table should be read in conjunction with the Fund's
Financial Statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28, 1994*
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.27
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------
Net investment income 0.48
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.07)
------------------
- ------------------------------------------------------------------------------
Total from investment operations 0.41
------------------
- ------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.41)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions (0.04)
------------------
- ------------------------------------------------------------------------------
Total distributions (0.45)
------------------
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.23
------------------
- ------------------------------------------------------------------------------
TOTAL RETURN** 3.28%
- ------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------
Expenses 1.87%(b)
- ------------------------------------------------------------------------------
Net investment income 4.02%(b)
- ------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.17%(b)
- ------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $64,409
- ------------------------------------------------------------------------------
Portfolio turnover rate 24%
- ------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 30, 1993 (date of initial
public offering) to February 28, 1994.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated February 28, 1994, which can be obtained free of charge.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Liberty Utility Fund, Inc. Federated Investors Tower
Class A Shares Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
LIBERTY UTILITY FUND, INC.
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0011102A-A (4/94)
LIBERTY UTILITY FUND, INC.
CLASS C SHARES
PROSPECTUS
The Class C Shares of Liberty Utility Fund, Inc. (the "Fund") offered by this
prospectus represent interests in the Fund which is an open-end, diversified
management investment company (a mutual fund).
The Fund invests in a diversified portfolio comprised primarily of equity
securities to achieve current income and long-term growth of income. Capital
appreciation is a secondary objective.
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 Class C Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares and Class C Shares dated April 30, 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS C SHARES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
Liberty Family Retirement Program 4
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objectives 4
Investment Policies 5
Repurchase Agreements 5
Lending of Portfolio Securities 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 6
Covered Call Options 6
Securities of Foreign Issuers 6
Portfolio Turnover 6
Investment Risks 6
Reducing Risks of Utility Securities 7
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN CLASS C SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly from the Distributor 9
By Wire 9
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
Retirement Plans 10
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
Requirements for Exchange 10
Tax Consequences 11
Making an Exchange 11
Telephone Instructions 11
REDEEMING CLASS C SHARES 11
- ------------------------------------------------------
Through a Financial Institution 12
Directly from the Fund 12
By Telephone 12
By Mail 12
Signatures 12
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
FUND INFORMATION 14
- ------------------------------------------------------
Management of the Fund 14
Board of Directors 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 15
Other Payments to Financial Institutions 15
Distribution of Class C Shares 15
Distribution and Shareholder Services Plans 15
Administration of the Fund 16
Administrative Services 16
Custodian 17
Transfer Agent and
Dividend Disbursing Agent 17
Legal Counsel 17
Independent Auditors 17
Brokerage Transactions 17
Expenses of the Fund and Class C Shares 17
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
Pennsylvania Corporate and
Personal Property Taxes 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
OTHER CLASSES OF SHARES 19
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 20
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES--CLASS C SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds as applicable)(1) ................................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)....................... None
Exchange Fee............................................................................. None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(2) ........................................................ 0.58%
12b-1 Fee................................................................................ 0.75%
Total Other Expenses..................................................................... 0.54%
Shareholder Servicing Fee..................................................... 0.25%
Total Class C Shares Operating Expenses(3) ....................................... 1.87%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
one year of their purchase date. For a more complete description, see
"Redeeming Class C Shares."
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.75%.
(3) The Total Class C Shares Operating Expenses would have been 2.04% absent
the voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS C SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE " INVESTING IN CLASS C SHARES" AND "FUND INFORMATION."
WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL
FEES.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period........................................ $ 29 $59 $ 101 $219
You would pay the following expenses on the same investment,
assuming no redemption....................................... $ 19 $59 $ 101 $219
</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.
The information set forth in the foregoing table and example relates only to
Class C Shares of the Fund. The Fund also offers another class of shares called
Class A Shares. Class A Shares and Class C Shares are subject to certain of the
same expenses; however, Class A Shares are subject to a maximum sales load of
4.50%, but are not subject to a 12b-1 fee or a contingent deferred sales charge.
See "Other Classes of Shares."
LIBERTY UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated April 13, 1994, on the Fund's Financial Statements
for the year ended February 28, 1994, is included in the Combined Statement of
Additional Information. This table should be read in conjunction with the Fund's
Financial Statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28, 1994*
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.27
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income 0.48
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.07)
-----------------
- ------------------------------------------------------------------------------------
Total from investment operations 0.41
-----------------
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.41)
- ------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment transactions (0.04)
-----------------
- ------------------------------------------------------------------------------------
Total distributions (0.45)
-----------------
- ------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.23
-----------------
- ------------------------------------------------------------------------------------
TOTAL RETURN** 3.28%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 1.87%(b)
- ------------------------------------------------------------------------------------
Net investment income 4.02%(b)
- ------------------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.17%(b)
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $64,409
- ------------------------------------------------------------------------------------
Portfolio turnover rate 24%
- ------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 30, 1993 (date of initial
public offering) to February 28, 1994.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated
February 28, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. From the date of the Fund's initial public offering in 1987 until May 27,
1988, the Fund was operated as a closed-end investment company. On May 16, 1988,
the shareholders of the Fund approved the conversion of the Fund from a
closed-end investment company to an open-end investment company. Shareholders of
the Fund, at a meeting held January 18, 1990, approved the Fund's name change
from Progressive Income Equity Fund, Inc. to Liberty Utility Fund, Inc. The
Fund's address is Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Articles of Incorporation permit the Fund to offer separate
series of shares representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. With respect
to the Fund, as of the date of this prospectus, the Board of Directors (the
"Directors") has established two classes of shares, known as Class A Shares and
Class C Shares. This prospectus relates only to Class C Shares ("Shares") of the
Fund.
Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. A minimum
initial investment of $1,500 is required, unless the investment is in a
retirement account, in which case the minimum investment is $50.
Shares are sold at net asset value. A contingent deferred sales charge ("CDSC")
of 1.00% may be charged on assets redeemed within the first twelve months
following purchase.
The Fund's current net asset value can be found in the mutual funds section of
local newspapers under "Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
- American Leaders Fund, Inc., providing growth of capital and income
through high quality stocks;
- Capital Growth Fund (Liberty Shares Class only), providing appreciation
of capital primarily through equity securities;
- Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
- International Equity Fund, providing long-term capital growth and income
through international securities;
- International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
- Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
- Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated, corporate bonds;
- Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
- Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
- Stock and Bond Fund, Inc. (Class C Shares), providing relative safety of
capital with the possibility of long-term growth of capital and income
through equity securities, convertible securities, debt securities, and
short-term obligations; and
- Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may
readily be made between investment options selected by the employer or a plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc.; Capital Growth Fund; Stock and Bond Fund, Inc.;
Fund for U.S. Government Securities, Inc.; International Equity Fund;
International Income Fund; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; and Prime Cash Series. Plans with over $1 million invested in
funds available in the Liberty Family Retirement Program may purchase Class A
Shares without a sales load.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
The primary investment objectives of the Fund are current income and long-term
growth of income. Capital appreciation is a secondary objective. While there is
no assurance that the Fund will achieve its investment objectives, it endeavors
to do so by following the policies described in this prospectus. The investment
objectives cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The Fund will seek to achieve its investment objectives by investing primarily
in common stocks, preferred stocks, units of participation in master limited
partnerships which are traded on national securities exchanges, securities
convertible into stock, and debt securities issued by companies in the utilities
industry. Under normal conditions, the Fund will invest at least 65% of its
total assets in securities issued by companies in the utilities industry, which
include companies engaged in the production, transmission or distribution of
electric energy or gas, or in communications facilities such as telephone or
telegraph services.
Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or (ii) determined by the investment adviser to be of investment
grade and not rated by either of the aforementioned rating services, or (iii)
the subordinated debt of issuers whose senior debt obligations are deemed to be
investment grade by either of the aforementioned rating services. Downgraded
securities will be evaluated on a case by case basis by the investment adviser.
The investment adviser will determine whether or not the security continues to
be an acceptable investment. If not, the security will be sold. The Directors do
not consider this limitation to apply to debt securities of an issuer
convertible into stock of that issuer.
For temporary, defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its agencies
or instrumentalities, commercial paper rated not lower than A-1 by Standard &
Poor's Corporation or Prime-1 by Moody's Investors Service, Inc., or repurchase
agreements.
The investment policies described above cannot be changed without shareholder
approval.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to 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. 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.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities, on a short-term or long-term basis, to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than
one-third of its total assets. 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 Directors
and will receive collateral in cash or United States government securities that
will be maintained in an amount equal to at least 100% of the current market
value of the securities loaned.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its total
assets in restricted securities. Restricted securities are any securities in
which the Fund may otherwise invest pursuant to its investment objectives and
policies but which are subject to restriction on resale under federal
securities law. To the extent these securities are deemed to be illiquid, the
Fund will limit its purchases together with other securities considered to be
illiquid to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
COVERED CALL OPTIONS. The Fund may also write call options on all or any portion
of its portfolio to generate income for the Fund. Call options written by the
Fund give the holder the right to buy the underlying securities of the Fund at
the stated exercise price. The Fund will write call options only 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
and sells must be listed on a recognized options exchange. The Fund's investment
in call options shall not exceed 5% of the Fund's total assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may purchase American Depository
Receipts ("ADRs") issued by U.S. Banks as a substitute for direct ownership of
securities of foreign companies in the utilities industry. ADRs are traded in
the United States on stock exchanges and in the over-the-counter markets like
stocks of domestic companies.
The Fund may also purchase securities of foreign issuers in the utilities
industry. While investment in foreign securities is intended to reduce risk by
providing further diversification, such investments involve sovereign risk in
addition to the credit and market risks normally associated with domestic
securities. Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations. There may be less
publicly available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting, auditing, and
financial reporting standards and requirements comparable to those applicable to
U.S. companies. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the U.S. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the U.S.). It may also be more difficult to enforce
contractual obligations or obtain court judgments abroad than would be the case
in the United States because of differences in the legal systems. These risks
are carefully considered by the Fund's adviser prior to the purchase of these
securities.
PORTFOLIO TURNOVER. It is not anticipated that the portfolio trading engaged in
by the Fund will result in its annual rate of portfolio turnover exceeding 100%.
The Fund's investment adviser does not anticipate that portfolio turnover will
result in adverse tax consequences. However, relatively high portfolio turnover
may result in high transaction costs to the Fund.
INVESTMENT RISKS
The Fund will attempt to meet its investment objectives by being at least 65%
invested in securities issued by companies in the utility industry. There exist
certain risks associated with the utility industry
of which investors in the Fund should be aware. These include difficulty in
earning adequate returns on investment despite frequent rate increases,
restrictions on operations and increased costs and delays due to governmental
regulations, building or construction delays, environmental regulations,
difficulty of the capital markets in absorbing utility debt and equity
securities, and difficulties in obtaining fuel at reasonable prices.
REDUCING RISKS OF UTILITY SECURITIES. The Fund's investment adviser believes
that the risks of investing in utility securities can be reduced. The
professional portfolio management techniques used by the Fund to attempt to
reduce these risks include credit research. The Fund's investment adviser will
perform its own credit analysis in addition to using recognized rating agencies
and other sources, including discussions with the issuer's management, the
judgment of other investment analysts, and its own informed judgment. The
investment 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 investment adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical costs.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:
- invest more than 25% of its total assets (valued at time of investment)
in securities of companies engaged principally in any one industry other
than the utilities industry, except that this restriction does not apply
to cash or cash items and securities issued or guaranteed by the United
States government or its agencies or instrumentalities;
- invest more than 5% of the value of its total assets in securities of
companies, including their predecessors, which have been in operation for
less than three years;
- invest more than 5% of its total assets (valued at the time of
investment) in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase agreements,
and securities issued or guaranteed by the United States government or
its agencies or instrumentalities;
- acquire more than 10% of the outstanding voting securities of any one
issuer (at the time of acquisition);
- borrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the value
of its net assets, including the amounts borrowed, and pledge up to 10%
of the value of those assets to secure such borrowings. 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;
- lend any of its assets except portfolio securities up to one-third of the
value of its total assets. This shall not prevent the purchase or holding
of corporate bonds, debentures, notes, certificates of indebtedness or
other debt securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment objectives and
policies;
- 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's investment in put or call options,
straddles, spreads, or any combination thereof shall not exceed 5% of the
Fund's total assets;
- invest more than 5% of its net assets in warrants, not more than 2% of
which can be warrants not listed on recognized exchanges; or
- invest more than 15% of total assets in securities of foreign issuers not
listed on recognized exchanges.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class C Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class C Shares in the liabilities of the Fund and those attributable to the
Class C Shares, and dividing the remainder by the number of Class C Shares
outstanding. The net asset value for Class C Shares may differ from that of
Class A Shares due to the variance in daily net income realized by each class.
Such variance will reflect only accrued net income to which the shareholders of
a particular class are entitled.
INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may, from time to time, offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered received when the
Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase Shares
directly from the distributor once an account has been established To do so:
- complete and sign the new account form available from the Fund;
- enclose a check made payable to Liberty Utility Fund, Inc.--Class C
Shares; and
- mail both to Liberty Utility Fund, Inc., P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agents bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
BY WIRE. To purchase Shares directly from the distributor by wire once an
account has been established, call the Fund. All information needed will be
taken over the telephone, and the order is considered received when State
Street Bank receives payment by wire. Federal funds should be wired as
follows: State Street Bank and Trust Company, Boston, Massachusetts 02105;
Attention: Mutual Fund Servicing Division; For Credit to: Liberty Utility
Fund, Inc.--Class C Shares; Title or Name of Account; Order Number; and
Account Number. Shares cannot be purchased by wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500 unless the investment is in a
retirement account, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement accounts, which must be in amounts of at least $50. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The net asset value is determined at 4:00 P.M. (Eastern time), Monday
through Friday, or at the close of the New York Stock Exchange, 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; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined
after an order is received by the transfer agent. A shareholder may apply for
participation in this program through his financial institution or directly
through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.
DIVIDENDS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Unless shareholders request cash payments on the new
account form or by writing to the Fund, dividends are automatically reinvested
in additional Shares on payment dates at the ex-dividend date net asset value.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
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
the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class C shareholders may exchange all or some of their
Shares for Class C Shares of other funds in the Liberty Family of Funds at net
asset value without a CDSC. Participants in a plan under the Liberty Family
Retirement Program may exchange some or all of their Shares for Class C Shares
of other funds offered under their plan at net asset value without a CDSC. Any
CDSC charged at the time exchanged-for shares are redeemed is calculated as if
the shareholder had held the shares from the date on which he or she became a
shareholder of the exchanged-from Shares. For more information, see "Contingent
Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. This privilege is not available where
redeemed Shares are assessed a CDSC or similar charge. 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. The exchange
privilege
may be modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a short-term or long-term capital
gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with Federated Services Company. If the instructions are given by a
broker, a telephone authorization form completed by the broker must be on file
with Federated Services Company. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registration.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions. Such instructions will be processed as of 4:00 P.M. (Eastern time)
and must be received by the transfer agent before that time for Shares to be
exchanged that day. Shareholders exchanging into a fund will not receive any
dividend that is payable to shareholders of record on that date. This privilege
may be modified or terminated at any time.
REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable CDSC, next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Fund computes its net asset value.
Redemptions can be made through a financial institution or directly from the
Fund. Redemption requests must be received in proper form. Redemptions of Shares
held through the Liberty Family Retirement Program will be governed by the
requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at their net asset value, less any applicable CDSC, 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.
DIRECTLY FROM THE FUND
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 Fund 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, such as redeeming by mail, should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Fund name and class
of shares' name, the account number, and the Share or dollar amount requested,
and should be signed exactly as the Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution", as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares will be charged a CDSC by Federated Securities
Corp. of 1.00% for redemptions of those Shares made within one year from the
date of purchase. To the extent that a shareholder exchanges between or among
Class C shares in other funds in the Liberty Family of Funds, 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. The CDSC will be calculated based upon the lesser of
the original purchase price of the Shares or the net asset value of the Shares
when redeemed. For additional information, see "Other Payments to Financial
Institutions."
The CDSC will not be imposed on Shares acquired through reinvestment of
dividends or distribution of short-term or longterm capital gains. Redemptions
are deemed to have occurred in the following order: 1) Shares acquired through
the reinvestment of dividends and long-term capital gains, 2) purchases of
Shares occurring more than one year before the date of redemption, and 3)
purchases of Shares within the previous year.
The CDSC will not be imposed when a redemption results from a tax-free return
under the following circumstances: (i) a total or partial distribution from a
qualified plan, other than an IRA, Keogh Plan, or a custodial account, following
retirement, (ii) a total or partial distribution from an IRA, Keogh Plan, or a
custodial account, after the beneficial owner attains age 70 1/2, or (iii) from
the death or total and permanent disability of the beneficial owner. The
exemption from the CDSC 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.
A CDSC will not be charged in connection with exchanges of Shares for Class C
Shares in other Liberty Family Funds or Liberty Family Retirement Program funds
or in connection with redemptions by the Fund of accounts with low balances. No
CDSC will be charged for redemptions from the Liberty Family Retirement Program.
For additional information, see "Other Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in Shares. For this reason, payments under this program
should not be considered as yield or income on the shareholder's investment in
Shares. To be eligible to participate in this program, a shareholder must have
an account value of at least $10,000. A shareholder may apply for participation
in this program through his financial institution.
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
$1,500. This requirement does not apply, however, if the balance falls below
$1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. The Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Passport
Research, Ltd., the Fund's investment adviser (the "Adviser"), subject to
direction by the Directors. Passport Research, Ltd. is located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Adviser continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments, for which it receives an annual
fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to .75 of 1% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Passport Research, Ltd. is a Pennsylvania limited
partnership organized in 1981. Federated Advisers is the general partner of
the Adviser and has a 50.5% interest in the Adviser. Federated Advisers is
a subsidiary of Federated Investors. Edward D. Jones & Co. is the limited
partner of the investment Adviser and has a 49.5% interest in the Adviser.
Passport Research, Ltd. has also acted as investment adviser for Edward D.
Jones & Co. Daily Passport Cash Trust since 1982. Employees of the Adviser
are also employees of other advisers which are affiliates of Federated
Investors.
Federated Investors, which was founded in 1956 as Federated Investors,
Inc., develops and manages mutual funds primarily for the financial
industry. Federated Investors' track record of competitive performance and
its disciplined, risk averse investment philosophy serve approximately
3,500 client institutions nationwide. Through these same client
institutions, individual shareholders also have access to this same level
of investment expertise.
Christopher H. Wiles has been the Fund's portfolio manager since May, 1990.
Mr. Wiles joined Federated Investors in 1990, and has been a Vice President
of the Adviser since 1992. Mr. Wiles served as Assistant Vice President of
the Adviser from 1990 until 1992. Mr. Wiles was a portfolio manager at
Mellon Bank from 1986 until 1990. Mr. Wiles is a Chartered Financial
Analyst and received his M.B.A. in Finance from Cleveland State University.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments
to financial institutions under the Distribution and Shareholder Services
Plans, certain financial institutions may be compensated by the Adviser or
its affiliates for the continuing investment of customers' assets in
certain funds, including the Fund, advised by those entities. These
payments will be made directly by the distributor or Adviser from their
assets, and will not be made from the assets of the Fund or by the
assessment of a sales charge on Shares.
Federated Securities Corp. will pay financial institutions an amount equal
to 1% of the net asset value of Shares purchased by their clients or
customers at the time of purchase (except for participants in the Liberty
Family Retirement Program). Financial institutions may elect to waive the
initial payment described above; such waiver will result in the waiver by
the Fund of the otherwise applicable CDSC.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares. Federated
Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of
.75 of 1% of the average daily net asset value of the Class C Shares, to finance
any activity which is principally intended to result in the sale of Shares
subject to the Distribution Plan. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") with respect to Class A Shares and Class C Shares under which it may make
payments up to 0.25 of 1% of the average daily net asset value of each
respective class of shares to obtain certain personal services for shareholders
and for the maintenance of shareholder accounts ("shareholder services"). The
Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined, from time to time, by the Fund and Federated
Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), a subsidiary
of Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to operate
the Fund. FAS, provides these at an annual rate which relates to 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>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares. FAS may
choose voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, P.0. Box 8604, Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, with offices in Boston, Massachusetts, is transfer
agent for the shares of the Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
One Oxford Centre, Pittsburgh, Pennsylvania 15219.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.
EXPENSES OF THE FUND AND CLASS C SHARES
Holders of Shares pay their allocable portion of Fund expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; Directors' fees; auditors' fees; the cost of meetings
of Directors; legal fees of the Fund; association membership dues and such
non-recurring and extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Services Plan and Distribution Plan. However, the
Directors reserve the right to allocate certain other expenses to holders of
Shares as they deem appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; fees under the Services
Plan; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and to state securities commissions; expenses related to administrative
personnel and services as required to support holders of Shares; legal fees
relating solely to Shares; and Directors' fees incurred as a result of issues
relating solely to Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is subject to Pennsylvania corporate franchise taxes; and
- Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the total return and yield for Class C
Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Class C Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Class C Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
C Shares over a thirty-day period by the maximum offering price per Share 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
Class C Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges such as
the CDSC, which, if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares and
Class C Shares. Because Class C Shares are subject to a Rule 12b-1 fee, the
total return and yield for Class A Shares, for the same period, may exceed that
of Class C Shares.
From time to time, the Fund may advertise the performance of Class C Shares
using certain financial publications and/or compare the performance of Class C
Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class A Shares, the other
class of shares offered by the Fund, are sold to customers of financial
institutions subject to a front-end sales charge of up to 4.50%. Class A Shares
are subject to a minimum initial investment of $500, unless the investment is in
a retirement account, in which case the minimum investment is $50.
The amount of dividends to Class A Shares will generally exceed that payable to
Class C Shares by the difference between Class Expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
LIBERTY UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young, the Fund's independent
auditors. Their report dated April 13, 1994, on the Fund's Financial Statements
for the year ended February 28, 1994, is included in the Combined Statement of
Additional Information. 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 FEBRUARY 28, OR 29
------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988*
-------- -------- -------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $12.29 $11.03 $10.13 $9.82 $9.15 $9.15 $9.30
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.60 0.58 0.68 0.71 0.71 0.72 0.55
- -------------------------------------
Net realized and unrealized gain
(loss) on investments -- 1.44 0.92 0.43 0.79 (0.02) (0.31)
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
Total from investment operations 0.60 2.02 1.60 1.14 1.50 0.70 0.24
- -------------------------------------
LESS DISTRIBUTIONS
- -------------------------------------
Dividends to shareholders from net
investment income (0.61) (0.66) (0.64) (0.70) (0.76) (0.70) (0.39)
- -------------------------------------
Distributions to shareholders from
net realized gain on investment
transactions (0.04) (0.10) (0.06) (0.13) (0.07) -- --
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
Total distributions (0.65) (0.76) (0.70) (0.83) (0.83) (0.70) (0.39)
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
NET ASSET VALUE, END OF PERIOD $12.24 $12.29 $11.03 $10.13 $9.82 $9.15 $9.15
- ------------------------------------- ------- ------- ------- ------- ------ ------- ------
TOTAL RETURN** 4.93% 19.26% 16.48% 12.41% 16.72% 8.00% 3.25%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.12% 1.04% 1.05% 1.02% 1.02% 1.00% 1.56%(b)
- -------------------------------------
Net investment income 4.81% 5.98% 6.31% 7.41% 7.17% 8.04% 8.24%(b)
- -------------------------------------
Expense waiver/reimbursement(a) 0.17% 0.01% 0.19% 0.51% 0.74% 0.40% 0.38%(b)
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000
omitted) $877,513 $739,511 $375,656 $125,599 $48,050 $410,575 $52,947
- -------------------------------------
Portfolio turnover rate 24% 18% 35% 45% 37% 34% 17%
- -------------------------------------
</TABLE>
* Reflects operations for the period from June 5, 1987 through February 29,
1988. For the period from the start of business, May 28, 1987 to June 4,
1987, net investment income aggregating $0.012 per share ($124) was
distributed to the Fund's Investment Adviser.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated February 28, 1994, which can be obtained free of charge.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Liberty Utility Fund, Inc. Federated Investors Tower
Class C Shares Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, PA 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
LIBERTY UTILITY FUND, INC.
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
0011102A (4/94)
LIBERTY UTILITY FUND, INC.
CLASS A SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
respective prospectuses of the Class A Shares and Class C Shares of Liberty
Utility Fund, Inc. (the "Fund") dated April 30, 1994. This Statement is not a
prospectus itself. To receive a copy of either prospectus, write or call the
Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES 1
- ---------------------------------------------------------------
Temporary Investments 1
Units of Master Limited Partnerships 1
Convertible Securities 1
Repurchase Agreements 2
Lending of Portfolio Securities 2
Restricted Securities 2
When-Issued and Delayed Delivery
Transactions 2
Reverse Repurchase Agreements 3
Covered Call Options 3
Portfolio Turnover 3
Investment Limitations 3
FUND MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Directors 5
The Funds 7
Fund Ownership 7
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE ARRANGEMENTS 8
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
SHAREHOLDER SERVICES PLAN 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
PURCHASING SHARES 9
- ---------------------------------------------------------------
Distribution Plan (Class C Shares Only) 9
Conversion to Federal Funds 10
Purchases by Sales Representatives,
Fund Directors, and Employees 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------------
Determining Market Value of Securities 10
REDEEMING SHARES 11
- ---------------------------------------------------------------
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 11
- ---------------------------------------------------------------
YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 22
- ---------------------------------------------------------------
APPENDIX 23
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. It is qualified to do business as a foreign corporation in Pennsylvania.
Shares of the Fund are offered in two classes, known as Class A Shares and Class
C Shares (individually and collectively referred to as "Shares", as the context
may require). The Fund does not presently offer Class B Shares. This Combined
Statement of Additional Information relates to both classes of the above
mentioned Shares.
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The primary investment objectives of the Fund are current income and long-term
growth of income. Capital appreciation is a secondary objective. The Fund will
seek to achieve its investment objectives by investing in a diversified
portfolio comprised primarily of equity securities. The investment objectives
cannot be changed without approval of shareholders.
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.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
- instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000, or
if the principal amount of the instrument is insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"), or the Savings Association Insurance
Fund ("SAIF"), which is administered by the FDIC; and
- prime commercial paper (rated A-1 by Standard and Poor's Corporation,
Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch Investors
Service).
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or
instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the
U.S. government are:
- Federal Land Banks;
- Central Bank for Cooperatives;
- Federal Intermediate Credit Banks;
- Federal Home Loan Banks;
- Farmers Home Administration; and
- Federal National Mortgage Association.
UNITS OF MASTER LIMITED PARTNERSHIPS
The Fund may invest in units of participation in master limited partnerships.
Master limited partnerships are generally partnerships with a large number of
limited partners whose ownership interests are publicly traded. The Fund will
not invest in partnerships investing in real estate or real estate investments.
The Fund will invest only in units of participation in master limited
partnerships that are traded on a national securities exchange.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a fixed
income security (a bond or preferred stock) which may be converted at a stated
price within a specified period of time into a certain quantity of common stock
of the same or a different issuer. Convertible securities are senior to common
stocks in a corporation's capital structure, but are usually subordinated to
similar nonconvertible securities. While providing a fixed income stream
(generally
- --------------------------------------------------------------------------------
higher in yield than the income derivable from a common stock but lower than
that afforded by a similar nonconvertible security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation attendant upon a market price advance in
the convertible security's underlying common stock.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of Directors (the
"Directors").
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.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) 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) 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) paper, thus providing liquidity.
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor for certain
secondary market transactions involving securities subject to restrictions on
resale under federal securities laws. The Rule provides an exemption from
registration for resales of otherwise restricted securities to qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the staff of the Securities and Exchange Commission has left
the question of determining the liquidity of all restricted securities (eligible
for resale under Rule 144A) for determination by the Directors. The Directors
consider the following criteria in determining the liquidity of certain
restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases or sells
securities with payment and delivery scheduled for a future time. The Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Fund's investment objectives
and policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund may engage in these
transactions to an extent that would cause the segregation of an amount up to
20% of the total value of its assets.
No fees or other expenses, other than normal transactions costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.
- --------------------------------------------------------------------------------
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
COVERED CALL OPTIONS
The Fund will receive a premium for writing a call option which increases the
Fund's return in the event the option expires unexercised or is closed out at a
profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option and the volatility of the market
price of the underlying security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option.
The Fund may terminate a call option it has written prior to expiration of the
option by entering into a closing purchase transaction in which it purchases an
option having the same terms as the option written. The Fund will realize a gain
or loss from such transaction if the cost of such transaction is less or more
than the premium received from writing the option. Because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from repurchase of a call
option is likely to be offset in whole or in part by the unrealized appreciation
of the underlying security owned by the Fund.
PORTFOLIO TURNOVER
For the fiscal years ended February 28, 1994 and 1993, the portfolio turnover
rates were 24% and 18%, respectively.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets (valued at the
time of investment) in securities of companies engaged principally in any
one industry other than the utilities industry, except that this
restriction does not apply to cash or cash items and securities issued or
guaranteed by the United States government or its agencies or
instrumentalities.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not borrow money, issue senior securities, or pledge
assets, except that under certain circumstances the Fund may borrow money
and engage in reverse repurchase transactions in amounts up to one-third
of the value of its net assets, including the amounts borrowed, and
pledge up to 10% of the value of those assets to secure such borrowings.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any such borrowings
(including reverse repurchase agreements) are outstanding.
PLEDGING ASSETS
The Fund will not pledge, mortgage, or hypothecate its assets, except to
secure permitted borrowings. In those cases, it may pledge, mortgage, or
hypothecate up to 10% of the value of assets to secure such borrowings.
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to its
custodian
- --------------------------------------------------------------------------------
to collateralize such intra-day cash advances in order to enable the Fund to
settle securities purchases or to redeem shares of the Fund.
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, which have been in
operation for less than three years.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and
limitations.
DIVERSIFICATION OF INVESTMENTS
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) 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.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes, certificates
of indebtedness or other debt securities of an issuer, repurchase
agreements, or other transactions which are permitted by the Fund's
investment objectives and policies.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under federal securities law (except
for commercial paper issued under Section 4(2) of the Securities Act of
1933).
WRITING COVERED CALL 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's investment in put or call
options, straddles, spreads, or any combination thereof shall not exceed
5% of the Fund's total assets.
INVESTING IN WARRANTS
The Fund will limit its investment in warrants to 5% of net assets, not
more than 2% of which can be warrants not listed on recognized exchanges.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Fund will limit its ability to purchase securities of foreign issuers
to not more than 15% of total assets in securities of foreign issuers not
listed on recognized exchanges.
INVESTING IN ILLIQUID SECURITIES
The Fund will limit its investment in illiquid securities, including
repurchase agreements providing for settlement in more than seven days
after notice, to not more than 15% of net assets.
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 1/2 of 1% of the issuer's securities together own more than
5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or mineral exploration
or development programs, except it may purchase the securities of issuers
which invest in or sponsor such programs.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or any interest therein,
except that the Fund may invest in securities secured by real estate or
interests therein, such as mortgage pass-throughs, pay-throughs,
collateralized
- --------------------------------------------------------------------------------
mortgage obligations, and securities issued by companies that invest in
real estate or interests therein. The Fund will not invest in limited
partnerships investing in real estate or real estate investments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase or retain shares of any open-end investment
company (exclusive of shares acquired as a result of merger,
consolidation, or other plan of reorganization).
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest for the purpose of exercising control over or
management of any company.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts.
In addition, in order to comply with certain state restrictions, the Fund will
not invest in oil, gas, or mineral leases. If state requirements change, this
limitation may be amended without notice to shareholders.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items".
FUND MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Passport Research, Ltd.,
Federated Investors, Federated Services Company, Federated Securities Corp.,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Director Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue,
Vice-President of the Fund.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Wood and Associates, Inc., Realtors; President, Northgate Village
Commercial Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Director Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Bank Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23 Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA. Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher* President and Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director Consultant; State Representative, Commonwealth of Massachusetts; Trustee,
225 Franklin Street Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat 'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Daniel A. Burkhardt Vice President Director, Essex County Gas Company, Amesbury, Massachusetts; Galaxy
201 Progress Parkway Cablevision Management, Sikeston, Missouri; Dial Real Estate Investment
Maryland Heights, MO Trust, Omaha, Nebraska; St. Joseph Light & Power Company, St. Joseph,
Missouri; Chairman, Community Service Radio, Peoria, Illinois; Chairman and
President of Community Investment Partners, L.P., St. Louis, Missouri.
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; Trustee, Federated
Tower Administrative Services; Trustee, Federated Services Company; President or
Pittsburgh, PA Vice President of the Funds; Director, Trustee or Managing General Partner
of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman
and Director of the Fund.
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Director, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940.
+ Members of the Fund's Executive Committee. The Executive Committee of the
Board handles the responsibilities of the Board between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series, Inc.; Cash Trust Series II; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc; Sunburst Funds; 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.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of March 30, 1994, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Merrill Lynch, Pierce, Fenner &
Smith (as record owner holding Class A shares for its clients), Jacksonville,
FL, owned approximately 6,415,682 Shares (9%).
As of March 30, 1994, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch, Pierce, Fenner &
Smith (as record owner holding Class C shares for its clients), Jacksonville,
FL, owned approximately 2,545,453 Shares (47.7%).
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser, Passport Research, Ltd. (the "Adviser"), was
organized as a Pennsylvania limited partnership in 1981. Federated Advisers is
the general partner of the Adviser and has a 50.5% interest in the Adviser. The
limited partner of the Adviser is Edward D. Jones & Co., which owns a 49.5%
interest in the adviser. Federated Advisers is owned by FII Holdings, Inc., a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son J. Christopher Donahue. John F. Donahue, Chairman and Trustee
of Federated Advisers, is Chairman and Trustee of Federated Investors and
Chairman and Director of the Fund. John A. Staley, IV, President and Trustee of
Federated Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and Vice President of
the Fund. J. Christopher Donahue, Trustee of Federated Advisers, is President
and Trustee of Federated Investors, Trustee of Federated Administrative
Services, Trustee of Federated Services Company; and Vice President of the Fund.
John W. McGonigle, Trustee of Federated Advisers, is Trustee, Vice President,
Secretary, and General Counsel of Federated Investors, Trustee, Executive Vice
President, and Secretary of Federated Administrative Services, Director and
Executive Vice President of Federated Securities Corp., Trustee of Federated
Services Company; and Vice President and Secretary of the Fund.
At any time, Edward D. Jones & Co. can require Federated Investors to repurchase
all of its partnership interest in the Adviser at the then current book value.
Edward D. Jones & Co. cannot transfer, sell, or assign its partnership interest
in the Adviser without first offering it to Federated Investors.
As long as Edward D. Jones & Co. owns a partnership interest in the Adviser, it
cannot acquire, organize, or cause the organization of any other money market
mutual fund or enter into arrangements with an investment adviser or underwriter
of any other money market mutual fund in which Edward D. Jones & Co. will offer
the shares of the other money market mutual fund. Edward D. Jones & Co. has
agreed not to solicit proxies in opposition to management of the Fund unless a
court of competent jurisdiction finds the conduct of a majority of the Board of
Directors constitutes willful misfeasance, bad faith, gross negligence, or
reckless disregard of its duties.
All of the officers of the Fund, except J. Christopher Donahue, and Daniel A.
Burkhardt, are officers of the Adviser. The relationships are described under
'Fund Management--Officers and Directors.'
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, Passport Research, Ltd. receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
February 28, 1994, and 1993, and February 29, 1992, the Adviser earned
$6,774,071, $4,017,913, and $1,741,765, respectively, which were reduced by
$1,510,782, $22,320, and $437,123, respectively.
STATE EXPENSE LIMITATION
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 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% 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 expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE ARRANGEMENTS
- --------------------------------------------------------------------------------
For the fiscal years ended February 28, 1994, and 1993, and February 29, 1992,
the distributor paid $567,691, $1,170,908, and $465,599, respectively, to
brokers and dealers for distribution and administrative services and to
administrators for administrative services. The administrative services
included, but were not limited to, providing office space, equipment, telephone
facilities, and various personnel, including clerical, supervisory, and
computer, as was necessary or beneficial to establish and maintain shareholders'
accounts and records, process purchase and redemption transactions, process
automatic investments of client account cash balances, answer routine client
inquiries regarding the Fund, assist
- --------------------------------------------------------------------------------
clients in changing dividend options, account designations, and addresses, and
providing such other services as the Fund reasonably requested.
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. For the fiscal years ended February 28, 1994 and 1993, and February
29, 1992, Federated Administrative Services, Inc., the Fund's former
administrator, earned $959,288, $576,939, and $345,896, respectively. John A.
Staley, IV, an officer of the Corporation, and Dr. Henry J. Gailliot, an officer
of the Adviser to the Fund, each hold approximately 15% and 20%, respectively,
of the outstanding common stock and serve as directors of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services, Inc., and Federated Administrative Services.
For the fiscal years ended February 28, 1994 and 1993, and February 29, 1992,
Federated Administrative Services, Inc. paid approximately $159,222, $179,920,
and $202,532, respectively, for services provided by Commercial Data Services,
Inc. to the Fund.
SHAREHOLDER SERVICES PLAN
- --------------------------------------------------------------------------------
This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to financial institutions to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses. For
this period, payments in the amount of $2,256,405 were made pursuant to the
Shareholder Services Plan.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The 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 relation to the value of the brokerage and
research services provided. The Fund anticipates that Edward D. Jones & Co.,
which is the limited partner of the Adviser, may upon occasion, subject to
certain restrictions, act as broker or dealer in connection with portfolio
transactions for the Fund.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To the
extent that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses.
For the fiscal years ended February 28, 1994 and 1993, and February 29, 1992,
the Fund paid $636,925, $540,200, and $384,799, respectively, in brokerage
commissions on brokerage transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the respective prospectuses,
Shares are sold at their net asset value (plus a sales charge on Class A Shares
only) on days the New York Stock Exchange is open for business. The procedure
for purchasing Shares is explained in the respective prospectuses under
"Investing in Class A Shares" or "Investing in Class C Shares."
DISTRIBUTION PLAN (CLASS C SHARES ONLY)
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to simulate distribution
activities and to cause services to be provided to shareholders by a
representative who
- --------------------------------------------------------------------------------
has knowledge of the shareholder's particular circumstances and goals. These
activities and services may include, but are not limited to, marketing efforts;
providing office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Directors expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ended February 28, 1994, payments in the amount of
$230,438 were made pursuant to the Distribution Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVE, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives 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., and their spouses and
children under 21, may buy Shares at net asset value without a sales charge and
are not subject to a contingent deferred sales charge ("CDSC") (Class C Shares
only) to the extent the financial institution through which the Shares are sold
agrees to waive any initial payment to which it might otherwise be entitled.
Shares may also be sold without sales charges to trusts or pension of
profit-sharing plans for these persons and to persons who elect to sweep into
the Fund (i.e., directly invest) the dividends payable on shares of common and
preferred stock, unit investment trusts, and closed-end investment companies,
owned directly or indirectly of such 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 respective prospectuses. Net asset
value will not be calculated on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- - according to the last sale price on a national securities exchange, if
available;
- - in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices, and for bonds and other fixed
income securities as determined by an independent pricing service; or
- - for short-term obligations, according to the 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
at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after State Street
Bank receives the redemption request. Shareholder redemptions of Class C Shares
may be subject to CDSC. Redemption procedures are explained in the respective
prospectuses under "Redeeming Class A Shares" and "Redeeming Class C Shares."
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from gains on the sale of securities
held less than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. Only a nominal portion of any income
dividend paid by the Fund is expected to be eligible for the dividends received
deduction available to corporations. 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
Fund Shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total returns for Class A Shares for the one-year
period ended February 28, 1994, and for the period from May 27, 1988 (effective
date) to February 28, 1994, were 0.21% and 13.14%, respectively.
The Fund's cumulative total return for Class C Shares for the period from April
30, 1993 (effective date) to February 28, 1994 was 2.27%.
The average annual total return for both classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the offering price per Share at the end of the period. The
number of Shares owned at the end of the period is based on the number of Shares
purchased at the beginning of the period with $1,000, less any applicable sales
load (Class A Shares only), adjusted over the period by any additional Shares,
assuming the quarterly reinvestment of all dividends and distributions. Any
applicable CDSC is deducted from the ending value of the investments based on
the lesser of the original purchase price or the offering price of Shares
redeemed. Occasionally, total return which does not reflect the effect of the
sales load may be quoted in advertising.
YIELD
- --------------------------------------------------------------------------------
The Fund's yields for Class A Shares and Class C Shares were 4.82% and 4.31%,
respectively, for the thirty-day period ended February 28, 1994.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per Share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per Share of each class of Shares on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a 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 performance of each class of Shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Fund's or either class of Shares' expenses; and
- - various other factors.
Either class of Shares' 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 other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC., for example, makes comparative calculations
for one month, three month, one year, and five year periods which assume the
reinvestment of all capital gains distributions and income dividends.
- - DOW JONES INDUSTRIAL AVERAGE ('DJIA') represents share prices of selected blue
chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA is
a leading economic indicator for the stock market as a whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, financial, and public
utility companies, compares total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's index
assumes reinvestment of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in Standard & Poor's figures.
- - STANDARD & POOR'S UTILITY INDEX is an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price of
the stocks. The index also provides figures for changes in price from the
beginning of the year to date, and for a twelve month period.
- - DOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for either class of Shares may quote
total returns which are calculated on nonstandardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on quarterly reinvestment of dividends over a
specified period of time.
From time to time, the Fund may advertise the performance of either class of
Shares using charts, graphs and descriptions, compared to federally insured bank
products including certificates of deposit and time deposits and to money market
funds using the Lipper Analytical Services money market instruments average.
Advertisements may quote performance information which does not reflect the
effect of a sales load.
LIBERTY UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--64.6%
- --------------------------------------------------------------------------------------------------
UTILITIES--58.3%
--------------------------------------------------------------------------------
500,000 Allegheny Power Systems, Inc. $ 12,062,500
--------------------------------------------------------------------------------
129,000 American Electric Power Co., Inc. 4,273,125
--------------------------------------------------------------------------------
525,000 Baltimore Gas & Electric Co. 12,206,250
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
800,000 BCE, Inc. 28,900,000
--------------------------------------------------------------------------------
625,000 British Telecommunications ADR 18,734,375
--------------------------------------------------------------------------------
600,000 Carolina Power & Light Co. 16,350,000
--------------------------------------------------------------------------------
200,000 Cilcorp, Inc. 6,775,000
--------------------------------------------------------------------------------
500,000 Cincinnati Gas & Electric Co. 12,250,000
--------------------------------------------------------------------------------
450,000 CMS Energy Corp. 10,293,750
--------------------------------------------------------------------------------
418,000 Consolidated Edison Co. 12,383,250
--------------------------------------------------------------------------------
500,000 Detroit Edison Co. 14,062,500
--------------------------------------------------------------------------------
650,000 DPL, Inc. 12,918,750
--------------------------------------------------------------------------------
500,000 DQE, Inc. 15,875,000
--------------------------------------------------------------------------------
300,000 Duke Power Co. 11,587,500
--------------------------------------------------------------------------------
390,600 Entergy Corp. 12,987,450
--------------------------------------------------------------------------------
400,000 Florida Progress Corp. 11,850,000
--------------------------------------------------------------------------------
650,000 General Public Utilities 18,606,250
--------------------------------------------------------------------------------
475,000 GTE Corp. 15,496,875
--------------------------------------------------------------------------------
300,000 Hong Kong Telecommunications ADR 17,062,500
--------------------------------------------------------------------------------
325,000 Ipalco Enterprises, Inc. 10,603,125
--------------------------------------------------------------------------------
600,000 Long Island Lighting Co. 13,875,000
--------------------------------------------------------------------------------
310,000 MCN Corp. 11,935,000
--------------------------------------------------------------------------------
66,000 Niagara Mohawk Power Corp. 1,237,500
--------------------------------------------------------------------------------
630,000 Nipsco Industries, Inc. 19,057,500
--------------------------------------------------------------------------------
625,000 Northeast Utilities Co. 14,609,375
--------------------------------------------------------------------------------
500,000 NYNEX Corp. 18,625,000
--------------------------------------------------------------------------------
800,000 Pacific Enterprises 17,000,000
--------------------------------------------------------------------------------
1,000,000 Pacificorp 18,000,000
--------------------------------------------------------------------------------
700,000 Peco Energy Co. 18,812,500
--------------------------------------------------------------------------------
273,000 Peoples Energy Corp. 8,155,875
--------------------------------------------------------------------------------
600,000 Pinnacle West Capital Corp. 12,825,000
--------------------------------------------------------------------------------
400,000 PSI Resources, Inc. 9,600,000
--------------------------------------------------------------------------------
600,000 Public Service Enterprises Group, Inc. 18,225,000
--------------------------------------------------------------------------------
750,000 Sonat, Inc. 22,781,250
--------------------------------------------------------------------------------
375,000 Southern Co. 15,421,875
--------------------------------------------------------------------------------
401,400 Southern New England Telecommunications Corp. 12,694,275
--------------------------------------------------------------------------------
420,000 UGI Corp. New 9,660,000
--------------------------------------------------------------------------------
</TABLE>
LIBERTY UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
500,000 Utilicorp, Inc. $ 14,625,000
--------------------------------------------------------------------------------
550,000 Western Resources, Inc. 16,706,250
-------------------------------------------------------------------------------- ------------
Total 549,124,600
-------------------------------------------------------------------------------- ------------
CONSUMER SERVICES--2.2%
--------------------------------------------------------------------------------
275,000 CBL & Associate Properties, Inc. 5,431,250
--------------------------------------------------------------------------------
586,000 Simon Property Group, Inc. 15,089,500
-------------------------------------------------------------------------------- ------------
Total 20,520,750
-------------------------------------------------------------------------------- ------------
ENERGY--1.7%
--------------------------------------------------------------------------------
255,000 Texaco, Inc. 16,543,125
-------------------------------------------------------------------------------- ------------
HEALTH CARE--1.9%
--------------------------------------------------------------------------------
525,000 Meditrust REIT 17,521,875
-------------------------------------------------------------------------------- ------------
CONSUMER DURABLE--0.5%
--------------------------------------------------------------------------------
335,000 Southwestern Properties REIT 4,438,750
-------------------------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $567,147,006) 608,149,100
-------------------------------------------------------------------------------- ------------
PREFERRED STOCKS--28.9%
- --------------------------------------------------------------------------------------------------
ADJUSTABLE RATE PREFERRED STOCKS--6.2%
--------------------------------------------------------------------------------
162,600 Enserch Corp., ARPS 16,422,600
--------------------------------------------------------------------------------
180,000 Illinois Power Co., Pfd. B, ARPS 9,022,500
--------------------------------------------------------------------------------
335,000 Niagara Mohawk Power Corp., C, ARPS 8,542,500
--------------------------------------------------------------------------------
100,000 Texas Utilities Electric Co., A, ARPS 9,700,000
--------------------------------------------------------------------------------
52,000 Texas Utilities Electric Co., Pfd. B, ARPS 5,252,000
--------------------------------------------------------------------------------
255,050 Toledo Edison Co., Pfd. B, ARPS 6,440,013
--------------------------------------------------------------------------------
66,508 USX Marathon Group Corp., ARPS 3,333,714
-------------------------------------------------------------------------------- ------------
Total 58,713,327
-------------------------------------------------------------------------------- ------------
CONVERTIBLE PREFERRED STOCKS--22.0%
--------------------------------------------------------------------------------
1,025,000 Citicorp, Conv. Pfd., Series P, 8.25% 20,500,000
--------------------------------------------------------------------------------
185,000 * Cointel/Telefonica De Argentina Prides, Conv. Pfd., 7.00% 13,220,100
--------------------------------------------------------------------------------
200,000 Freeport McMoran, Inc., Conv. Pfd., $4.375 10,025,000
--------------------------------------------------------------------------------
230,000 Kaufman and Broad Home Corp., Conv. Pfd., Series B, 8.75% 4,830,000
--------------------------------------------------------------------------------
400,000 * Occidental Petroleum, Conv. Pfd., 7.75% 20,800,000
--------------------------------------------------------------------------------
450,000 * Phillipine Long Distance, Conv. Pfd., 5.75% 19,068,750
--------------------------------------------------------------------------------
200,000 Reynolds Metals Co., Conv. Pfd., 7.00% 10,450,000
--------------------------------------------------------------------------------
2,500,000 RJR Nabisco Holdings, Conv. Pfd., 8.25% 17,812,500
--------------------------------------------------------------------------------
475,000 Sears Roebuck & Co., Conv. Pfd., Series A, $3.75 25,650,000
--------------------------------------------------------------------------------
300,000 Sun America, Inc., Conv. Pfd., Series D, $2.78 11,550,000
--------------------------------------------------------------------------------
653,400 Sun America, Inc., Conv. Pfd., Series P, $8.50 11,516,175
--------------------------------------------------------------------------------
450,000 Tenneco, Inc., Conv. Pfd., 9.50% 18,843,750
--------------------------------------------------------------------------------
365,000 Unisys Corp., Conv. Pfd., $3.75 18,341,250
--------------------------------------------------------------------------------
144,000 Utilicorp, Inc., Conv. Pfd. $1.78 4,068,000
-------------------------------------------------------------------------------- ------------
Total 206,675,525
-------------------------------------------------------------------------------- ------------
</TABLE>
LIBERTY UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- -------------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
PREFERRED STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
PREFERRED INVERSE FLOATING STOCKS--0.7%
--------------------------------------------------------------------------------
54 * Potomac Electric Power Co., Pfd. Inv., Series 1991B $ 6,385,500
-------------------------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $244,455,019) 271,774,352
-------------------------------------------------------------------------------- ------------
CONVERTIBLE CORPORATE BONDS--3.9%
- --------------------------------------------------------------------------------------------------
BROADCASTING--1.9%
--------------------------------------------------------------------------------
$44,000,000 Turner Broadcasting System, Inc., LYON, 7.25%, accrual 2/13/2007 17,985,000
-------------------------------------------------------------------------------- ------------
UTILITIES--2.0%
--------------------------------------------------------------------------------
10,000,000 * National Power, 6.25% Conv. Bonds, 9/23/2008 18,817,803
-------------------------------------------------------------------------------- ------------
TOTAL CONVERTIBLE CORPORATE BONDS (IDENTIFIED COST, $33,601,473) 36,802,803
-------------------------------------------------------------------------------- ------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
**REPURCHASE AGREEMENT--2.5%
- --------------------------------------------------------------------------------------------------
23,675,000 J.P. Morgan Securities, Inc., 3.49%, dated 2/28/94, due 3/1/94
(at amortized cost) (Note 2B) 23,675,000
-------------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $868,878,498) $940,401,255+
-------------------------------------------------------------------------------- ------------
</TABLE>
* Restricted securities--Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 8.3% of net assets (Note 2G).
** The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement is through participation in a joint account with other
Federated Funds.
+ The cost of investments for federal tax purposes amounts to $868,878,498 at
February 28, 1994. The net unrealized appreciation on a federal tax basis
amounts to $71,522,757, which is comprised of $89,061,458 appreciation and
$17,538,701 depreciation, at February 28, 1994.
Note: The categories of investments are shown as a percentage of net assets
($941,922,323) at February 28, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
ADR -- American Depository Receipts
ARPS -- Adjustable Rate Preferred Stock
LYON -- Liquid Yield Option Note
REIT -- Real Estate Investment Trust
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (Notes 2A and 2B) (identified and tax cost, $868,878,498) $940,401,255
- -----------------------------------------------------------------------------------------------
Cash 47,700
- -----------------------------------------------------------------------------------------------
Receivable for investments sold 11,260,624
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 5,906,640
- -----------------------------------------------------------------------------------------------
Receivable for capital stock sold 2,322,591
- ----------------------------------------------------------------------------------------------- ------------
Total assets 959,938,810
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased $13,320,000
- ---------------------------------------------------------------------------------
Payable for capital stock redeemed 3,900,138
- ---------------------------------------------------------------------------------
Accrued expenses and other liabilities 796,349
- --------------------------------------------------------------------------------- -----------
Total liabilities 18,016,487
- ----------------------------------------------------------------------------------------------- ------------
NET ASSETS for 76,940,337 shares of capital stock outstanding $941,922,323
- ----------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------
Paid-in capital $846,626,193
- -----------------------------------------------------------------------------------------------
Unrealized appreciation of investments 71,522,757
- -----------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments 9,475,267
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 14,298,106
- ----------------------------------------------------------------------------------------------- ------------
Total $941,922,323
- ----------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE PER SHARE:
- -----------------------------------------------------------------------------------------------
Class A Shares (net assets of $877,512,912 / 71,672,469 shares of capital stock outstanding) $ 12.24
- ----------------------------------------------------------------------------------------------- ------------
Class C Shares (net assets of $64,409,411 / 5,267,868 shares of capital stock outstanding) $ 12.23
- ----------------------------------------------------------------------------------------------- ------------
OFFERING PRICE PER SHARE:
- -----------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $12.24) $ 12.82*
- ----------------------------------------------------------------------------------------------- ------------
Class C Shares $ 12.23
- ----------------------------------------------------------------------------------------------- ------------
REDEMPTION PROCEEDS PER SHARE:
- -----------------------------------------------------------------------------------------------
Class A Shares $ 12.24
- ----------------------------------------------------------------------------------------------- ------------
Class C Shares (99/100 of $12.23) $ 12.11**
- ----------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
LIBERTY UTILITY FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------
Dividends (Note 2C) $ 48,595,296
- -----------------------------------------------------------------------------------------------
Interest (Note 2C) 4,878,009
- ----------------------------------------------------------------------------------------------- ------------
Total income 53,473,305
- -----------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 6,774,071
- ---------------------------------------------------------------------------------
Directors' fees 20,491
- ---------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 959,288
- ---------------------------------------------------------------------------------
Custodian and recordkeeper fees 213,407
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 5) 802,987
- ---------------------------------------------------------------------------------
Shareholder servicing fee (Note 5) 2,256,405
- ---------------------------------------------------------------------------------
Distribution services fee (Note 5) 230,438
- ---------------------------------------------------------------------------------
Capital stock registration fees 207,404
- ---------------------------------------------------------------------------------
Auditing fees 30,269
- ---------------------------------------------------------------------------------
Legal fees 25,337
- ---------------------------------------------------------------------------------
Printing and postage 171,243
- ---------------------------------------------------------------------------------
Taxes 87,078
- ---------------------------------------------------------------------------------
Insurance premiums 19,600
- ---------------------------------------------------------------------------------
Miscellaneous 10,936
- --------------------------------------------------------------------------------- -----------
Total expenses 11,808,954
- ---------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 1,510,782
- --------------------------------------------------------------------------------- -----------
Net expenses 10,298,172
- ----------------------------------------------------------------------------------------------- ------------
Net investment income 43,175,133
- ----------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 12,441,016
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (18,342,651)
- ----------------------------------------------------------------------------------------------- ------------
Net realized and unrealized loss on investments (5,901,635)
- ----------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 37,273,498
- ----------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY UTILITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1994 1993
------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 43,175,133 $ 31,948,020
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments ($11,416,757 net gain and $2,500,511
net gain, respectively, as computed for federal income tax purposes) 12,441,016 1,476,253
- -------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (18,342,651) 68,494,526
- ------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 37,273,498 101,918,799
- ------------------------------------------------------------------------------- ------------- ------------
NET EQUALIZATION (DEBITS)/CREDITS (Note 2F) 1,150,284 3,599,572
- ------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (Note 3)--
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income
- -------------------------------------------------------------------------------
Class A Shares (41,477,441) (29,470,349)
- -------------------------------------------------------------------------------
Class C Shares (965,765) --
- -------------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investments
- -------------------------------------------------------------------------------
Class A Shares (2,715,075) (4,381,113)
- -------------------------------------------------------------------------------
Class C Shares (101,609) --
- ------------------------------------------------------------------------------- ------------- ------------
Change in net assets from distributions to shareholders (45,259,890) (33,851,462)
- ------------------------------------------------------------------------------- ------------- ------------
CAPITAL STOCK TRANSACTIONS (NOTE 4)--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 327,197,815 327,761,325
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive
payment of distributions in capital stock 31,818,829 22,789,102
- -------------------------------------------------------------------------------
Cost of shares redeemed (149,769,576) (58,362,219)
- ------------------------------------------------------------------------------- ------------- ------------
Change in net assets from capital stock transactions 209,247,068 292,188,208
- ------------------------------------------------------------------------------- ------------- ------------
Change in net assets 202,410,960 363,855,117
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 739,511,363 375,656,246
- ------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $14,298,106 and
$12,415,895, respectively) $ 941,922,323 $739,511,363
- ------------------------------------------------------------------------------- ------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Effective April 30, 1993 (the effective date for the Class C Shares), Liberty
Utility Fund, Inc. (the "Fund") provides two classes of shares Class A Shares
and Class C Shares. Class A Shares and Class C Shares are identical in all
respects except that Class A Shares are subject to a sales load, and Class C
Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance
with Investment Company Act Rule 12b-1. Under the Plan, the Fund may pay
Federated Securities Corp. (the "distributor") a fee at an annual rate of up to
.75 of 1% of the average daily net asset value of Class C Shares to finance any
activity which is principally intended to result in the sale of Class C Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Equity securities listed on the New York Stock Exchange or any other national
securities exchange are valued at the last sale price or, if there has been no sale on that day, at the
mean between bid and asked prices. Unlisted equity securities are valued at the latest mean prices.
Bonds and other fixed income portfolio securities (which may trade on a national securities exchange
and/or over the counter) are valued at the last sale price on a national securities exchange on that
day, if available; otherwise they shall be valued on the basis of prices provided by an independent
pricing service, when such prices are believed to reflect the fair market value of such securities.
Short-term obligations shall ordinarily be valued at the mean between bid and asked prices as furnished
by an independent pricing service. However, short-term obligations with maturities of 60 days or less
are valued at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's underlying securities to ensure the existence of a
proper level of collateral.
The Fund will only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be creditworthy pursuant
to guidelines established by the Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
C. INCOME--Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Interest income includes interest, and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including original issue discount as
required by the Internal Revenue Code, as amended. Dividends to shareholders and capital gain
distributions, if any, are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal Revenue Code, as
amended, applicable to regulated investment companies and to distribute to shareholders each year all of
its taxable income. Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery
transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of
acquiring portfolio securities consistent with its investment objective and policies and not for the
purpose of investment leverage. The Fund will record a when-issued security and the related liability on
the trade date. Until the securities are received and paid for, the Fund will maintain security
positions such that sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily
and begin earning interest on the settlement date.
F. EQUALIZATION--The Fund follows the accounting practice known as equalization by which a portion of the
proceeds from sales and costs of redemptions of capital stock equivalent on a per share basis to the
amount of undistributed net investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment income per share is
unaffected by sales or redemptions of capital stock.
G. RESTRICTED SECURITIES--The Fund is permitted to invest in privately placed restricted securities. These
securities may be resold in transactions exempt from registration or to the public if the securities are
registered. Disposal of these securities may involve time-consuming negotiations and expenses, and
prompt sale at an acceptable price may be difficult. Additional information on each restricted security
held at February 28, 1994, is as follows:
</TABLE>
LIBERTY UTILITY FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION
COST
SECURITY ACQUISITION DATE PER UNIT
------------------------------------------------------- -------------------- ------------
<S> <C> <C>
Cointel/Telefonica De Argentina Prides 2/24/94 $ 72
-------------------------------------------------------
National Power 10/4/93 163
-------------------------------------------------------
Occidental Petroleum 2/11/93 50
-------------------------------------------------------
Phillipine Long Distance 10/9/92 25
-------------------------------------------------------
Potomac Electric Power Co. 10/15/91 and 8/3/92 110,630
-------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
H. OTHER--Investment transactions are accounted for on the trade date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends are declared and paid quarterly, and the Fund intends to distribute
net realized capitals gains, if any, at least annually. Shareholders may elect
to have all distributions of dividends and capital gains automatically
reinvested in additional shares of the Fund.
(4) CAPITAL STOCK
At February 28, 1994, there were 1,000,000,000 shares of $.001 par value stock
authorized. Of these shares, 375,000,000 have been designated Class A Shares of
the Fund and 375,000,000 as Class C Shares of the Fund. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------
1994 1993
---------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Class A Shares:
- ----------------------------------------------------
Shares outstanding, beginning of period 60,148,409 $ 637,379,125 34,048,199 $345,190,917
- ----------------------------------------------------
Shares sold 20,606,339 255,156,993 29,234,867 327,761,325
- ----------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 2,539,366 31,371,725 2,064,175 22,789,102
- ----------------------------------------------------
Shares redeemed (11,621,645) (143,855,060) (5,198,832) (58,362,219)
- ---------------------------------------------------- ----------- ------------- ---------- ------------
Shares outstanding, end of period 71,672,469 $ 780,052,783 60,148,409 $637,379,125
- ---------------------------------------------------- ----------- ------------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------------------------------
1994 1993
-------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
- ---------------------------------------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Class C Shares:
- ----------------------------------------------------
Shares outstanding, beginning of period -- -- -- --
- ----------------------------------------------------
Shares sold 5,706,191 $72,040,822 -- --
- ----------------------------------------------------
Shares issued to shareholders in payment
of dividends declared 35,769 447,104 -- --
- ----------------------------------------------------
Shares redeemed (474,092) (5,914,516) -- --
- ---------------------------------------------------- --------- -----------
Shares outstanding, end of period 5,267,868 $66,573,410 -- --
- ---------------------------------------------------- --------- -----------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Passport Research, Ltd., the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to .75 of 1% of the
Fund's average daily net assets. The Adviser has voluntarily agreed to waive a
portion of its fee. The Adviser can modify or terminate this voluntary waiver of
expense at any time at its sole discretion. For the year ended February 28,
1994, the advisory fee amounted to $6,774,071 of which $1,510,782 was
voluntarily waived.
LIBERTY UTILITY FUND, INC.
- --------------------------------------------------------------------------------
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Class C Shares of the Fund, to finance activities intended to result in the sale
of the Fund's Class C Shares. The Plan provides that the Fund may incur
distribution expenses of up to .75 of 1% of the average daily net assets of the
Class C Shares, annually, to compensate FSC. For the year ended February 28,
1994, the Fund paid distribution service fees of $230,438.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS a fee to obtain certain personal
services for shareholders and the maintenance of shareholder accounts. The fee
is based on the level of average net assets for the period.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services, ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fee received during any
fiscal year shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Certain of the officers and Directors of the Fund are officers and Directors of
the above corporations.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
year ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
PURCHASES $403,461,899
- -------------------------------------------------------------------------------------------- ------------
SALES $212,389,251
- -------------------------------------------------------------------------------------------- ------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
LIBERTY UTILITY FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Liberty
Utility Fund, Inc. including the portfolio of investments, as of February 28,
1994, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights (see the respective prospectuses for Class A
Shares and Class C Shares) for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Liberty Utility Fund, Inc. at February 28, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Pittsburgh, PA
April 13, 1994
APPENDIX
- --------------------------------------------------------------------------------
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer.
Consequently, the Adviser believes that the quality of fixed income securities
in which the Fund invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell, or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
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-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
STANDARD AND POOR'S CORPORATION LONG TERM DEBT RATING DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
- - Well-established access to a range of financial markets and assured sources of
alternate liquidity.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
- --------------------------------------------------------------------------------
011102B (4/94)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part B)
(b) Exhibits:
(1) Copy of Amended and Restated Articles of Incorporation
of the Registrant (3.);
(i) Copy of Articles of Incorporation, as amended
(5.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant (3.);
(5) Copy of Investment Advisory Contract of the Registrant
(5.);
(6) Conformed Copy of Distributor's Contract of the
Registrant; +
(7) Not applicable;
(8) Copy of Custodian Agreement of the Registrant (8);
(9) Copy of Agency Agreement of the Registrant (8);
(i) Conformed Copy of the Shareholder Services Plan
of the Registrant;+
(10) Not applicable;
(11) Conformed Copy of Consent of Independent
Auditors;+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Conformed Copy of 12b-1 Plan;+
(16) Schedule for Computation of Fund
Performance Data (4.);
(17) Power of Attorney (7.);
(18) Conformed Copy of Opinion and Consent of
Counsel as to availability of Rule 485(b);+
___________________
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-2 filed April 16, 1987. (File No.
33-13388)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 3 on Form N-2 filed May 19, 1987. (File No. 33-13388)
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed May 18, 1988. (File No. 33-13388)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed April 24, 1989. (File No. 33-13388)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed February 21, 1990. (File No.
33-13388)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 20, 1990. (File No. 33-13388)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed April 22, 1992. (File No. 33-13388)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed April 23, 1993. (File No. 33-13388)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of March 30, 1994
Shares of capital stock
($0.001 per Share par value)
Class A Shares 63,014
Class C Shares 2,541
Item 27. Indemnification: (1)
Item 28. Business and Other Connections of Investment Adviser:
(a) 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 five of the Officers of the investment adviser
are included in Part B of this Registration Statement under
"Fund Management - Officers and Directors."
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, Gary J. Madich, J.
Alan Minteer, Senior Vice Presidents; Randall A. Bauer,
Jonathan C. Conley, Deborah A. Cunningham, Mark E. Durbiano,
Roger A. Early, Kathleen M. Foody-Malus, David C. Francis,
Thomas M. Franks, Edward C. Gonzales, Jeff A. Kozemchak,
Marian R. Marinach, John W. McGonigle, Gregory M. Melvin,
Susan M. Nason, Mary Jo Ochson, Robert J. Ostrowski, Charles
A. Ritter, Christopher H. Wiles, Vice Presidents; J. Scott
Albrecht, Joseph Balestrino, Michael P. Donnelly, Linda Anne
Duessel, Timothy Keefe, Frederick L. Plautz, Jr., James D.
Roberge, Thomas F. Woodhouse, Assistant Vice Presidents;
John W. McGonigle, Secretary; Edward C. Gonzales, Treasurer;
The business address of each of the Officers of the
investment adviser is Federated Investors Tower, Pittsburgh,
PA 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in
Part B of this Registration Statement under "The Funds."
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed March 31, 1988. (File
No. 33-13388)
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: A.T. Ohio Municipal
Money Fund; Alexander Hamilton Funds; American Leaders Fund,
Inc.; Annuity Management Series; Automated Cash Management
Trust; Automated Government Money Trust; BayFunds; The
Biltmore Funds; The Biltmore Municipal Funds; The Boulevard
Funds; California Municipal Cash Trust; Cambridge Series
Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; FT Series, Inc.; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; Financial Reserves 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; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty Municipal Securities Fund,
Inc.; Liberty U.S. Government Money Market Trust; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Mark Twain Funds; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money
Market Trust; The Monitor Funds; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal
Trust; Signet Select Funds; SouthTrust Vulcan Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; Tower Mutual Funds; Trademark
Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision
Fiduciary Funds, Inc.; Vision Group of Funds, Inc.; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief Director
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President and
Federated Investors Tower President, and Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President Vice President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promugated thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Federated Services Company Pittsburgh, PA 15222-3779
("Transfer Agent and Dividend
Disbursing Agent")
Federated Administrative Services
("Administrator")
Passport Research, Ltd.
("Adviser")
State Street Bank and Trust Company P.O. Box 8604
("Custodian") Boston, Massachusetts
02266-8604
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
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.
Registrant hereby undertakes to comply with the provisions
of Section 16(c) of the 1940 Act with respect to the removal
of Trustees and the calling of special shareholder meetings
by shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, LIBERTY UTILITY FUND, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania,
on the 22nd day of April, 1994.
LIBERTY UTILITY FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
April 22, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact April 22, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
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, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
April 13, 1994, in Post-Effective Amendment Number 10 to the Registration
Statement (Form N-1A No. 33-13388) and the related Prospectuses of LIBERTY
UTILITY FUND, INC. (Class A and Class C Shares) dated April 30, 1994.
By: ERNST & YOUNG
Ernst & Young
Pittsburgh, Pennsylvania
April 20, 1994
Exhibit 18 under Form N-1A
Exhibit 99 under 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR. __________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
April 18, 1994
Liberty Utility Fund, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Liberty Utility Fund, Inc. ("Fund") we have
reviewed Post-effective Amendment No. 10 to the Fund's
Registration Statement to be filed with the Securities and
Exchange Commission under the Securities Act of 1933 (File
No. 33-13388). The subject Post-effective Amendment will be filed
pursuant to Paragraph (b) of Rule 485 and become effective
pursuant to said Rule immediately upon filing.
Our review also included an examination of other relevant
portions of the amended 1933 Act Registration Statement of the
Fund and such other documents and records deemed appropriate. On
the basis of this review we are of the opinion that
Post-effective Amendment No. 10 does not contain disclosures
which would render it ineligible to become effective pursuant to
Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation
letter as a part of the Fund's Registration Statement filed with
the Securities and Exchange Commission under the Securities Act
of 1933 and as part of any application or registration statement
filed under the Securities Laws of the States of the United
States.
Very truly yours,
Houston, Houston & Donnelly
By: /s/Thomas J. Donnelly
TJD:heh
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY UTILITY FUND, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 1st day of March, 1993, by and
between Liberty Utility Fund, Inc. (the "Corporation"), a
Maryland Corporation, and FEDERATED SECURITIES CORP.
("FSC"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties
hereto as follows:
1. The Corporation hereby appoints FSC as its agent
to sell and distribute shares of the Corporation which may
be offered in one or more series (the "Funds") consisting of
one or more classes (the "Classes") of shares (the
"Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current
Prospectuses of the Corporation. FSC hereby accepts such
appointment and agrees to provide such other services for
the Corporation, if any, and accept such compensation from
the Corporation, if any, as set forth in the applicable
exhibit to this Agreement.
2. The sale of any Shares may be suspended without
prior notice whenever in the judgment of the Corporation it
is in its best interest to do so.
3. Neither FSC nor any other person is authorized by
the Corporation to give any information or to make any
representation relative to any Shares other than those
contained in the Registration Statement, Prospectuses, or
Statements of Additional Information ("SAIs") filed with the
Securities and Exchange Commission, as the same may be
amended from time to time, or in any supplemental
information to said Prospectuses or SAIs approved by the
Corporation. 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
Corporation. No person or dealer, other than FSC, is
authorized to act as agent for the Corporation for any
purpose. FSC agrees that in offering or selling Shares as
agent of the Corporation, 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 Corporation copies of all
sales literature before using the same and will not use such
sales literature if disapproved by the Corporation.
4. This Agreement is effective with respect to each
Class as of the date of execution of the applicable exhibit
and shall continue in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes
added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such
continuance is approved at least annually by the Directors
of the Corporation including a majority of the members of
the Board of Directors of the Corporation who are not
interested persons of the Corporation and have no direct or
indirect financial interest in the operation of any
Distribution Plan relating to the Corporation or in any
related documents to such Plan ("Disinterested Directors")
cast in person at a meeting called for that purpose. If a
Class is added after the first annual approval by the
Directors as described above, this Agreement will be
effective as to that Class upon execution of the applicable
exhibit and will continue in effect until the next annual
approval of this Agreement by the Directors and thereafter
for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of
any penalty, by the vote of a majority of the Disinterested
Directors or by a majority of the outstanding voting
securities of the particular Fund or Class on not more than
sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to
a particular Fund or Class by FSC on sixty (60) days'
written notice to the Corporation.
6. This Agreement may not be assigned by FSC and
shall automatically terminate in the event of an assignment
by FSC as defined in the Investment Company Act of 1940, as
amended, provided, however, that FSC may employ such other
person, persons, corporation or corporations as it shall
determine in order to assist it in carrying out its duties
under this Agreement.
7. FSC shall not be liable to the Corporation 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.
8. 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 Corporation including a majority of the Disinterested
Directors of the Corporation cast in person at a meeting
called for that purpose.
9. This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of
Pennsylvania.
10. (a) Subject to the conditions set forth below,
the Corporation 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 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, any
Prospectuses or SAIs (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
Corporation about FSC by or on behalf of FSC expressly for
use in the Registration Statement, any Prospectuses and SAIs
or any amendment or supplement thereof.
If any action is brought against FSC or any
controlling person thereof with respect to which indemnity
may be sought against the Corporation pursuant to the
foregoing paragraph, FSC shall promptly notify the
Corporation in writing of the institution of such action and
the Corporation shall assume the defense of such action,
including the employment of counsel selected by the
Corporation 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 be at the expense of FSC or such
controlling person unless the employment of such counsel
shall have been authorized in writing by the Corporation in
connection with the defense of such action or the
Corporation 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 Corporation.
Anything in this paragraph to the contrary notwithstanding,
the Corporation shall not be liable for any settlement of
any such claim of action effected without its written
consent. The Corporation agrees promptly to notify FSC of
the commencement of any litigation or proceedings against
the Corporation or any of its officers or Directors or
controlling persons in connection with the issue and sale of
Shares or in connection with the Registration Statement,
Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the
Corporation, each of its Directors, each of its officers who
have signed the Registration Statement and each other
person, if any, who controls the Corporation 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 any Prospectus, SAI, or any
amendment or supplement thereof in reliance upon, and in
conformity with, information furnished to the Corporation
about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof. In case any action shall
be brought against the Corporation or any other person so
indemnified based on the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof, and
with respect to which indemnity may be sought against FSC,
FSC shall have the rights and duties given to the
Corporation, and the Corporation and each other person so
indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to
protect any person against liability to the Corporation 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.
(d) Insofar as indemnification for liabilities
may be permitted pursuant to Section 17 of the Investment
Company Act of 1940, as amended, for Directors, officers,
FSC and controlling persons of the Corporation by the
Corporation pursuant to this Agreement, the Corporation is
aware of the position of the Securities and Exchange
Commission as set forth in the Investment Company Act
Release No. IC-11330. Therefore, the Corporation 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 Disinterested
Directors, 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 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, Trustee/Director, FSC 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
non-party Disinterested 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.
11. If at any time the Shares of any Fund are offered
in two or more Classes, FSC agrees to adopt compliance
standards as to when a class of shares may be sold to
particular investors.
12. This Agreement will become binding on the parties
hereto upon the execution of the attached exhibits to the
Agreement.
Exhibit A
to the
Distributor's Contract
Liberty Utility Fund, Inc.
Class A Shares
In consideration of the mutual covenants set forth in
the Distributor's Contract dated March 1, 1993, between
Liberty Utility Fund, Inc. and Federated Securities Corp.,
Liberty Utility Fund, Inc. executes and delivers this
Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 1st day of March,
1993.
ATTEST: LIBERTY UTILITY FUND, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary President
(SEAL)
Exhibit B
to the
Distributor's Contract
Liberty Utility Fund, Inc.
Class C Shares
The following provisions are hereby incorporated and
made part of the Distributor's Contract dated the 1st day of
March, 1993, between Liberty Utility Fund, Inc. and
Federated Securities Corp. with respect to Classes of the
Funds set forth above.
1. The Corporation hereby appoints FSC to engage in
activities principally intended to result in the sale of
shares of the above-listed Classes ("Shares"). Pursuant to
this appointment, FSC is authorized to select a group of
brokers ("Brokers") to sell Shares at the current offering
price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render
administrative support services to the Corporation and its
shareholders. In addition, FSC is authorized to select a
group of administrators ("Administrators") to render
administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but
are not limited to, the following functions: 1) account
openings: the Broker or Administrator communicates account
openings via computer terminals located on the Broker's or
Administrator's premises; 2) account closings: the Broker
or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or
Administrator's own personal computer or through the use of
a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption
transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges
to provide accounting support for all transactions. Broker
or Administrator also wires funds and receives funds for
Corporation share purchases and redemptions, confirms and
reconciles all transactions, reviews the activity in the
Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker
or Administrator posts and reinvests dividends to the
Corporation's accounts; 7) prospectus and shareholder
reports: Broker or Administrator maintains and distributes
current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously
advertises the availability of its services and products; 9)
customer lists: the Broker or Administrator continuously
provides names of potential customers; 10) design services:
the Broker or Administrator continuously designs material to
send to customers and develops methods of making such
materials accessible to customers; and 11) consultation
services: the Broker or Administrator continuously provides
information about the product needs of customers.
3. During the term of this Agreement, the Corporation
will pay FSC for services pursuant to this Agreement, a
monthly fee computed at the annual rate of .75 of 1.00% of
the average aggregate net asset value of the Class C Shares
held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the
month.
4. FSC may from time-to-time and for such periods as
it deems appropriate reduce its compensation to the extent
any Classes' expenses exceed such lower expense limitation
as FSC may, by notice to the Corporation, voluntarily
declare to be effective.
5. FSC will enter into separate written agreements
with various firms to provide certain of the services set
forth in Paragraph 1 herein. FSC, in its sole discretion,
may pay Brokers and Administrators a periodic fee in respect
of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time
to time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors
of the Corporation on a quarterly basis showing amounts
expended hereunder including amounts paid to Brokers and
Administrators and the purpose for such payments.
In consideration of the mutual covenants set forth in
the Distributor's Contract dated March 1, 1993, between
Liberty Utility Fund, Inc. and Federated Securities Corp.,
Liberty Utility Fund, Inc. executes and delivers this
Exhibit on behalf of the Funds, and with respect to the
separate Classes of Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 4th day of May,
1993.
ATTEST: LIBERTY UTILITY FUND, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary President
(SEAL)
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
LIBERTY UTILITY FUND, INC.
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as
of this 1st day of March, 1993, by the Board of Directors
of Liberty Utility Fund, Inc. (the "Fund"), a Maryland
corporation with respect to certain classes of shares
("Classes") of the portfolios of the Corporation set forth
in exhibits hereto.
1. This Plan is adopted to allow the Fund to make
payments as contemplated herein to obtain certain personal
services for shareholders and/or the maintenance of
shareholder accounts ("Services").
2. This Plan is designed to compensate broker/dealers
and other participating financial institutions and other
persons ("Providers") for providing services to the Fund and
its shareholders. The Plan will be administered by
Federated Administrative Services, Inc. ("FAS"). In
compensation for the services provided pursuant to this
Plan, Providers will be paid a monthly fee computed at the
annual rate not to exceed .25 of 1% of the average aggregate
net asset value of the shares of the Fund held during the
month.
3. Any payments made by the Portfolios to any
Provider pursuant to this Plan will be made pursuant to the
"Shareholder Services Agreement" entered into by FAS on
behalf of the Fund and the Provider. Providers which have
previously entered into "Administrative Agreements" or "Rule
12b-1 Agreements" with Federated Securities Corp. may be
compensated under this Plan for Services performed pursuant
to those Agreements until the Providers have executed a
"Shareholder Services Agreement" hereunder.
4. The Fund has the right (i) to select, in its sole
discretion, the Providers to participate in the Plan and
(ii) to terminate without cause and in its sole discretion
any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains in
effect, FAS shall prepare and furnish to the Board of
Directors of the Fund, and the Board of Directors shall
review, a written report of the amounts expended under the
Plan.
6. This Plan shall become effective (i) after
approval by majority votes of: (a) the Fund's Board of
Directors; and (b) the members of the Board of the
Corporation who are not interested persons of the
Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect to
each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the Fund and
of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on it.
9. This Plan may be terminated at any time by: (a) a
majority vote of the Disinterested Directors; or (b) a vote
of a majority of the outstanding voting securities of the
Fund as defined in Section 2(a)(42) of the Act.
10. While this Plan shall be in effect, the selection
and nomination of Disinterested Directors of the Fund shall
be committed to the discretion of the Disinterested
Directors then in office.
11. All agreements with any person relating to the
implementation of this Plan shall be in writing and any
agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 9 herein.
12. This Plan shall be construed in accordance with
and governed by the laws of the Commonwealth of
Pennsylvania.
Witness the due execution hereof this 1st day of March,
1993.
LIBERTY UTILITY FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT A
to the
Shareholder Services Plan
Liberty Utility Fund, Inc.
Class A Shares
This Plan is adopted by Liberty Utility Fund, Inc. with
respect to the Class of Shares of the Corporation set forth
above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Class A Shares of the Corporation held
during the month.
Witness the due execution hereof this 1st day of March,
1993.
LIBERTY UTILITY FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT B
to the
Shareholder Services Plan
Liberty Utility Fund, Inc.
Class C Shares
This Plan is adopted by Liberty Utility Fund, Inc. with
respect to the Class of Shares of the Corporation set forth
above.
In compensation for the services provided pursuant to
this Plan, Providers will be paid a monthly fee computed at
the annual rate of .25 of 1% of the average aggregate net
asset value of the Class C Shares of the Corporation held
during the month.
Witness the due execution hereof this 4th day of May,
1993.
LIBERTY UTILITY FUND, INC.
By:/s/ Richard B. Fisher
LIBERTY UTILITY FUND, INC.
Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY UTILITY FUND, INC.
RULE 12b-1 PLAN
This Plan ("Plan") is adopted as of this 4th day of
May, 1993, by the Board of Directors of LIBERTY UTILITY
FUND, INC. (the "Corporation"), a Maryland corporation with
respect to certain classes of shares ("Classes") of the
Corporation set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended ("Act"), so
as to allow the Corporation to make payments as contemplated
herein, in conjunction with the distribution of Classes of
the Funds ("Shares").
2. This Plan is designed to finance activities of
Federated Securities Corp. ("FSC") principally intended to
result in the sale of Shares to include: (a) providing
incentives to financial institutions ("Institutions") to
sell Shares; (b) advertising and marketing of Shares to
include preparing, printing and distributing prospectuses
and sales literature to prospective shareholders and with
Institutions; and (c) implementing and operating the Plan.
In compensation for services provided pursuant to this Plan,
FSC will be paid a fee in respect of the following Classes
set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan
will be made pursuant to the "Distributor's Contract"
entered into by the Corporation and FSC. Any payments made
by FSC to Institutions with funds received as compensation
under this Plan will be made pursuant to the "Rule 12b-1
Agreement" entered into by FSC and the Institution.
4. FSC has the right (i) to select, in its sole
discretion, the Institutions to participate in the Plan and
(ii) to terminate without cause and in its sole discretion
any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in
effect, FSC shall prepare and furnish to the Board of
Directors of the Corporation, and the Board of Directors
shall review, a written report of the amounts expended under
the Plan and the purpose for which such expenditures were
made.
6. This Plan shall become effective with respect to
each Class (i) after approval by majority votes of: (a) the
Corporation's Board of Directors; (b) the members of the
Board of the Corporation who are not interested persons of
the Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding
voting securities of the particular Class, as defined in
Section 2(a)(42) of the Act and (ii) upon execution of an
exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to
each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
Class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the
Corporation and of the Disinterested Directors, cast in
person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase
materially the costs which the Classes may bear for
distribution pursuant to the Plan without being approved by
a majority vote of the outstanding voting securities of the
Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a
particular Class at any time by: (a) a majority vote of the
Disinterested Directors; or (b) a vote of a majority of the
outstanding voting securities of the particular Class as
defined in Section 2(a)(42) of the Act; or (c) by FSC on 60
days' notice to the Corporation.
11. While this Plan shall be in effect, the selection
and nomination of Disinterested Directors of the Corporation
shall be committed to the discretion of the Disinterested
Directors then in office.
12. All agreements with any person relating to the
implementation of this Plan shall be in writing and any
agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with
and governed by the laws of the Commonwealth of
Pennsylvania.
EXHIBIT A
to the
12b-1 Plan
LIBERTY UTILITY FUND, INC.
Class C Shares
This Plan is adopted by LIBERTY UTILITY FUND, INC. with
respect to the Class of Shares of the Corporation set forth
above.
In compensation for the services provided pursuant to
this Plan, FSC will be paid a monthly fee computed at the
annual rate of .75 of 1% of the average aggregate net asset
value of the Class C Shares of the Corporation held during
the month.
Witness the due execution hereof this 4th day of May,
1993.
LIBERTY UTILITY FUND, INC.
By:/s/ Richard B. Fisher
President
