FORTRESS UTILITY FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Dear Shareholder:
The management of the Fortress Utility Fund, Inc. (the "Fortress Fund") is
pleased to announce the next step in reorganizing many of its Federated mutual
funds under the Federated name, the purpose of which is to make it easier for
you to locate your fund in newspapers, trade journals, and other rating
services. The Board of Directors of the Liberty Utility Fund, Inc. took the
first two steps by changing the name of the Liberty Utility Fund, Inc. to the
Federated Utility Fund, Inc. (the "Federated Fund"), and by adding a new class
of shares called Class F Shares.
To eliminate the offering of substantially identical funds, the Board of
Directors of the Fortress Fund has recommended that the Fortress Fund become
part of the Federated Fund. The Fortress Fund has a similar investment objective
and policies to that of the Federated Fund in that it seeks income by investing
primarily in securities issued by companies in the utilities industry. The Class
F Shares have identical distribution related charges and operating expenses to
those of the Fortress Fund.
The Board of Directors of the Fortress Fund submits for your vote a
proposal to transfer all of the assets of the Fortress Fund to the Federated
Fund. As a part of the transaction, shareholders in the Fortress Fund would
receive Class F Shares in the Federated Fund equal in value to their shares in
the Fortress Fund and the Fortress Fund would be liquidated. If approved, this
proposed combination will be a tax-free reorganization that will not affect the
value of your account.
Your vote on this issue is critical to its success. The combination will be
effected only if approved by a majority of the Fortress Fund's outstanding
shares, as defined under the Investment Company Act of 1940, on the record date
voted in person or represented by proxy. Because we believe this combination of
funds is in the best interest of shareholders, we encourage you to vote in favor
of the proposal in person, or by proxy if you are unable to attend the meeting.
We encourage you to review the enclosed materials carefully before you vote.
Sincerely,
Richard B. Fisher
President
FORTRESS UTILITY FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF FORTRESS UTILITY FUND, INC.
A Special Meeting of Shareholders (the "Meeting") of Fortress Utility Fund,
Inc. (the "Fortress Fund"), a Maryland corporation, will be held at 2:00 p.m. on
May 31, 1996, at the office of the Fortress Fund, Federated Investors Tower,
19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purpose:
1. To approve or disapprove a proposed Agreement and Plan of Reorganization
between the Fortress Fund and Federated Utility Fund, Inc. (the
"Federated Fund"), whereby the Fortress Fund would transfer all of its
assets to the Federated Fund in exchange for Class F Shares of the
Federated Fund to be distributed pro rata by the Fortress Fund to its
shareholders in complete liquidation and dissolution of the Fortress
Fund; and
2. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
By the Order of the Board of Directors,
John W. McGonigle
Dated: April 11, 1996 Secretary
Shareholders of record at the close of business on March 25, 1996 are
entitled to vote at the meeting. Whether or not you plan to attend the meeting,
please sign and return the enclosed proxy card. Your vote is important.
- -------------------------------------------------------------------------------
| TO SECURE THE LARGEST POSSIBLE REPRESENTATION, AND TO SAVE THE EXPENSE |
| OF FURTHER MAILINGS, PLEASE SIGN YOUR PROXY CARD AND RETURN IT IN THE |
| ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.|
| YOU MAY REVOKE YOUR PROXY AT ANY TIME, AT OR PRIOR TO THE MEETING, OR VOTE |
| IN PERSON IF YOU ATTEND THE MEETING. |
- -------------------------------------------------------------------------------
PROSPECTUS/PROXY STATEMENT
March 31, 1996
Acquisition of the Assets of
FORTRESS UTILITY FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1-800-245-5051
By and In Exchange for F Shares of
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1-800-245-5051
This Prospectus/Proxy Statement relates to shares of common stock
designated as Class F Shares, par value $0.001 per Share, of Federated Utility
Fund, Inc. (the "Federated Fund") to be issued to, and in exchange for all the
assets of, Fortress Utility Fund, Inc. (the "Fortress Fund"). Following receipt
of the Federated Fund shares, the Fortress Fund will be liquidated and the
Federated Fund shares will be distributed pro rata to shareholders of the
Fortress Fund, with Fortress Fund shareholders receiving Class F Shares of the
Federated Fund. The total value of a Fortress Fund shareholder's investment will
not change in connection with the reorganization. The terms and conditions of
this transaction are more fully described in the Prospectus/Proxy Statement. The
Federated Fund is an open-end, diversified management investment company whose
investment objectives are current income and long-term growth of income. Capital
appreciation is a secondary objective. The Federated Fund pursues its investment
objective by investing in a professionally managed, diversified portfolio
limited primarily to securities issued by companies in the utilities industry.
The Fortress Fund is also an open-end, diversified management investment company
whose investment objective is high current income and moderate capital
appreciation. The Fortress Fund pursues its objective by investing in a
professionally managed, diversified portfolio limited primarily to securities
issued by companies in the utilities industry. For a comparison of the
investment policies of the Federated Fund and the Fortress Fund, see "Investment
Objectives and Policies."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about the Federated Fund that a prospective
investor should know before investing. This Prospectus/Proxy Statement is
accompanied by the Class F Shares Prospectus of the Federated Fund dated March
29, 1996, which is incorporated herein by reference. Statements of Additional
Information for the Federated Fund dated March 29, 1996 (relating to the Class F
Shares Prospectus of the same date) and March 31, 1996 (relating to this
Prospectus/Proxy Statement), the Annual Report of the Federated Fund for the
fiscal year ended February 28, 1995, and the Semi-Annual Report of the Federated
Fund for the period ended August 31, 1995, all containing additional
information, have been filed with the Securities and Exchange Commission and are
incorporated
herein by reference. Copies of the Statements of Additional Information and
Annual and Semi-Annual Reports may be obtained without charge by writing or
calling the Federated Fund at the address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT 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.
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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary of Fund Expenses................................................................................... 4
Synopsis................................................................................................... 5
Investment Objectives and Policies.................................................................... 5
Distribution, Purchase and Redemption Procedures and Exchange Rights.................................. 7
Advisory and Other Significant Fees................................................................... 9
Risk Factors............................................................................................... 9
Information About the Transaction.......................................................................... 10
Reasons for the Proposed Reorganization............................................................... 10
Terms of the Acquisition.............................................................................. 11
Comparative Information on Shareholder Rights......................................................... 12
Federal Income Tax Consequences....................................................................... 12
Capitalization........................................................................................ 13
Information About the Federated Fund and the Fortress Fund................................................. 13
Federated Utility Fund, Inc........................................................................... 13
Fortress Utility Fund, Inc............................................................................ 14
Voting Information......................................................................................... 14
Security Ownership of Certain Beneficial Owners and Management of the
Federated Fund and the Fortress Fund................................................................ 15
Legal Matters.............................................................................................. 16
Other Matters and Discretion of Attorneys Named in the Proxy............................................... 16
Agreement and Plan of Reorganization...........................................................................Exhibit A
</TABLE>
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Federated Fund
Fortress Fund Class F Shares
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......................................... 1.00% 1.00%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price).......................................... None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)..................... 1.00% 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............. None None
Exchange Fee................................................................... None None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)*
<S> <C> <C>
Management Fee (after waiver)(2)............................................... 0.64% 0.61%
12b-1 Fee...................................................................... None None
Total Other Expenses........................................................... 0.50% 0.51%
Shareholder Services Fee (after waiver)(3)................................. 0.21% 0.22%
Total Operating Expenses(4).................................................... 1.14% 1.12%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
four years of their purchase date.
(2) The management fee for the Fortress Fund 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%. The estimated management fee for the
Federated Fund has been reduced to reflect the anticipated voluntary waiver
of a portion of the management fee. The adviser can terminate this
anticipated voluntary waiver at any time at its sole discretion. The maximum
management fee is 0.75%.
(3) The maximum shareholder services fee is 0.25%.
(4) The total Fortress Fund operating expenses would have been 1.29% absent the
voluntary waivers of a portion of the management fee and the shareholder
services fee. The total Class F Shares operating expenses are estimated to
be 1.29% absent the anticipated voluntary waivers of a portion of the
management fee and the shareholder services fee.
*As a percentage of projected average net assets with respect to Class F Shares
of the Federated Fund. Total Class F Shares operating expenses are estimated
based on average expenses expected to be incurred during the period ending
February 28, 1997. During the course of this period, expenses may be more or
less than the average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fortress Fund and Class F
Shares will bear, either directly or indirectly. 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
Fortress Fund........................................................ $ 32 $ 57 $ 72 $ 147
Federated Fund Class F Shares........................................ $ 32 $ 56 -- --
You would pay the following expenses on a $1,000 investment, assuming no
redemption
Fortress Fund........................................................ $ 22 $ 46 $ 72 $ 147
Federated Fund Class F Shares........................................ $ 21 $ 45 -- --
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE CLASS F SHARES' FISCAL YEAR ENDING
FEBRUARY 28, 1997.
PROSPECTUS/PROXY STATEMENT
SYNOPSIS
This Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by and on behalf of the Board of Directors of Fortress
Utility Fund, Inc. to be used at the Special Meeting of Shareholders (the
"Meeting") to be held at the Fortress Fund's principal offices on the 19th floor
of Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779 at 2:00 p.m. on May 31, 1996 and at any adjournment thereof. The
Board of Directors of the Fortress Fund has determined that it is in the best
interest of the Fortress Fund's shareholders that the Fortress Fund and the
Federated Fund be combined. Under the Agreement and Plan of Reorganization, the
Fortress Fund would transfer all of its assets to the Federated Fund in exchange
for Class F Shares of the Federated Fund to be distributed pro rata by the
Fortress Fund to its shareholders in complete liquidation and dissolution of the
Fortress Fund (the "Reorganization"). If the Reorganization is consummated,
shareholders of the Fortress Fund will become holders of Class F Shares of the
Federated Fund having a total net asset value equal to the total net asset value
of his or her holdings in the Fortress Fund on the date of the Reorganization,
i.e., the Closing Date.
As a condition to the Reorganization, the Federated Fund and the Fortress
Fund will receive an opinion of counsel that the Reorganization will be
considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either the
Fortress Fund or its shareholders. The tax cost basis of the Class F Shares
received by Federated Fund shareholders will be the same as the cost of the
shares of the Fortress Fund held by shareholders immediately before the
Reorganization.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of both funds are substantially
similar, and are described in the Class F Shares' Prospectus dated March 29,
1996 and the Fortress Fund's Prospectus dated July 31, 1995. Reference is hereby
made to both Prospectuses, which set forth in detail the investment objectives
and policies of each of the Federated Fund and the Fortress Fund, each of which
is incorporated by reference into this Prospectus/Proxy Statement.
The Federated Fund is an open-end, diversified management investment
company that seeks current income and long-term growth of income with capital
appreciation as a secondary objective. The Federated Fund pursues its objectives
by investing primarily in common stocks, preferred stocks, units of
participation in master limited partnerships which are traded on a national
securities exchange, securities convertible into stock, and debt securities
issued by companies in the utilities industry. Under normal circumstances, with
respect to 65% of its assets, the Federated Fund will invest in utility
companies that derive 50% of their revenues from utilities or assets relating to
utility industries. The investment objectives and the investment policies
described above cannot be changed without shareholder approval.
The Fortress Fund is an open-end, diversified management investment company
that seeks high current income and moderate capital appreciation by investing
primarily in a professionally managed, diversified portfolio of equity and debt
securities of utility companies. The investment
objective cannot be changed without approval of shareholders; however, the
investment policies may be changed by the Board of Directors without shareholder
approval. As a matter of investment policy, the Fortress Fund will invest at
least 65% of its total assets in securities of utility companies.
The utility securities in which both funds invest include common stocks of
utility companies, debt obligations which fall in one of the following rating
categories: (i) rated investment grade by either Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"), or (ii) determined by
the adviser to be of investment grade and not rated by either of the
aforementioned rating services. Downgraded securities will be evaluated on a
case by case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security will be
sold. Both funds may purchase securities of foreign issuers. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. There are other differences between investing in foreign and U.S.
companies that include: less publicly available information about foreign
companies; lack of uniform financial accounting standards applicable to foreign
companies; less readily available market quotations on foreign companies;
differences in governmental regulations and supervision of foreign stock
exchanges, brokers, listed companies and banks; generally lower foreign stock
market value; likelihood that foreign securities may be less liquid or more
volatile; foreign brokerage commissions may be higher; unreliable mail service
between countries; and political or financial changes which adversely affect
investments in some countries.
In order to generate additional income, both funds may lend portfolio
securities up to one-third of their total assets. There is risk that when
lending portfolio securities, the securities may not be available on a timely
basis, and the funds may, therefore, lose the opportunity to sell the securities
at a desirable price.
Both funds may also enter into repurchase agreements and when-issued and
delayed delivery transactions. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities to the fund and agree to repurchase them at a mutually agreed upon
time and price. To the extent that the original seller does not repurchase the
securities, the fund would receive less than the repurchase price on any sale of
such securities. When-issued and delayed delivery transactions are arrangements
in which the funds buy securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
fund to miss a price or yield considered to be advantageous.
Both funds have investment limitations which prohibit them from (1)
borrowing money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its assets and pledge up to 10% of the value of those
assets to secure such borrowings (with respect to the Federated Fund, the
borrowing policy is stated in terms of net assets and with respect to the
Fortress Fund, the borrowing policy is stated in terms of total assets); (2)
investing more than 5% of its total assets in securities of one issuer (except
cash and cash items and U.S. government securities); (3) investing more than 5%
of its total assets in securities of issuers that have records of less than
three years of continuous operations; (4) investing more than 10% of its assets
in certain securities subject to restrictions on
resale under federal securities law; and (5) acquiring more than 10% of any
class of voting securities of any one issuer.
Both the Federated Fund and the Fortress Fund are also subject to certain
additional limitations which are similar, although not identical, and are
described in the Federated Fund's Statement of Additional Information dated
March 29, 1996, and the Fortress Fund's Statement of Additional Information
dated July 31, 1995. Reference is hereby made to both Statements of Additional
Information, which set forth in full the investment objectives and policies and
investment limitations of each of the Federated Fund and the Fortress Fund, each
of which is incorporated by reference into this Prospectus/Proxy Statement.
DISTRIBUTION, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE RIGHTS
Reference is made to the Prospectus of the Class F Shares dated March 29,
1996 and the Prospectus of the Fortress Fund dated July 31, 1995 for a complete
description of the distribution, purchase and redemption procedures and exchange
rights of shares, each of which is incorporated by reference into this
Prospectus/Proxy Statement. Set forth below is a brief description of the
distribution, purchase and redemption procedures and exchange rights of the
Class F Shares and the Fortress Fund.
The transfer agent and dividend disbursing agent for both the Federated
Fund and the Fortress Fund is Federated Shareholder Services Company, a
subsidiary of Federated Investors. Class F Shares and shares of the Fortress
Fund are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution or directly from Federated
Securities Corp. ("FSC"), the principal distributor for Class F Shares and
shares of the Fortress Fund. The minimum initial investment in the Class F
Shares and the Fortress Fund is $1,500, except for retirement plans, in which
case the minimum initial investment is $50.
The purchase price of each of the Class F Shares and Fortress Fund shares
is based on the net asset value. The net asset value for each of the Class F
Shares and Fortress Fund shares is calculated as of the close of the New York
Stock Exchange (normally 4:00 p.m., Eastern time) on each day on which the Class
F Shares and the Fortress Fund compute their net asset value. Purchase and
redemption orders for the Class F Shares and the Fortress Fund received from
broker/dealers before 5:00 p.m. (Eastern time) and from other financial
institutions before 4:00 p.m. (Eastern time) receive that day's price.
Class F Shares and Fortress Fund shares are available through certain
authorized dealers at the public offering price, which is the net asset value
per share plus a sales charge of 1%. Class F Shares received by Fortress Fund
shareholders in connection with the Reorganization will not be subject to this
charge. In addition to the sales charge, FSC will pay financial institutions
from its own assets for distribution of and/or administrative services relating
to Class F Shares and Fortress Fund shares an amount equal to 1% of the offering
price of shares purchased by their clients on purchases up to $1,999,999, .50%
of the offering price on purchases of $2,000,000 to $4,999,999, and .25% of the
offering price on purchases of $5,000,000 or more. Financial institutions may
elect to waive all or a portion of the initial payment; such waiver will result
in the waiver of the otherwise applicable contingent deferred sales charge.
The Federated Fund and the Fortress Fund each have adopted a Shareholder
Services Agreement under which they pay up to .25 of 1% of the average daily net
assets of the Class F Shares and the Fortress Fund shares to obtain personal
services for shareholders and for the maintenance of shareholder accounts. The
Federated Fund and the Fortress Fund have each 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.
Class F Shares and shares of the Fortress Fund are redeemable at any time
at a price equal to the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request.
Redemptions will be made on days on which each of the Federated Fund and the
Fortress Fund compute net asset value. Redemptions may be made through a
financial institution, by telephone, by mailing a written request, or through
each of the Systematic Withdrawal Programs.
Shareholders redeeming Class F Shares and Fortress Fund shares within
certain time periods of the purchase date of those shares will be charged a
contingent deferred sales charge by FSC of the lesser of the original price or
the net asset value of shares redeemed, unless otherwise exempt, as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
<S> <C> <C>
Up to $1,999,999 4 years or less 1%
$2,000,000 to $4,999,999 2 years or less .50%
$5,000,000 or more 1 year or less .25%
</TABLE>
The contingent deferred sales charge will not be imposed on redemptions of
Fortress Fund shares as a result of the completion of the Reorganization. In
addition, the holding period or amount of contingent deferred sales charge to
which original Fortress Fund share purchases are subject will not be affected by
completion of the Reorganization. For purposes of computing the holding period
and amount of the contingent deferred sales charge, if any, for the newly
acquired Class F Shares in connection with the Reorganization, the time for
which original Fortress Fund shares were held will be added to the time for
which Class F Shares are held.
The Class F Shares and Fortress Fund have precisely the same exchange
privileges. Class F shareholders may exchange all or some of their shares for
Class F Shares in other funds distributed by FSC at net asset value without a
contingent deferred sales charge and in funds that were previously members of a
family of funds known as the Fortress Investment Program. Shareholders using
this privilege must exchange Class F Shares having a net asset value equal to
the minimum investment requirements of the fund into which the exchange is made.
This privilege is available to shareholders resident in any state in which the
Class F Shares being acquired may be sold. An exercise of the exchange privilege
is treated as a sale for federal income tax purposes. Depending upon the
circumstances, a capital loss or gain may be realized.
ADVISORY AND OTHER SIGNIFICANT FEES
Passport Research, Ltd. ("Passport") is the investment adviser to the
Federated Fund pursuant to an investment advisory contract which specifies an
annual fee of .75 of 1% of the Federated Fund's average daily net assets.
Federated Advisers, a subsidiary of Federated Investors, is the general partner
and has a 50.5% interest in Passport. Edward D. Jones & Co., L.P., is the
limited partner and has a 49.5% interest in Passport. Federated Management, a
subsidiary of Federated Investors, is the investment adviser to the Fortress
Fund pursuant to an investment advisory contract which specifies an annual fee
of .75 of 1% of the Fortress Fund's average daily net assets.
Both Passport and Federated Management may voluntarily waive all or a
portion of their fee or reimburse both funds for certain operating expenses.
Passport and Federated Management can terminate their voluntary waivers at any
time at their sole discretion. Passport and Federated Management have also
undertaken to reimburse their respective funds for operating expenses in excess
of limitations established by certain states.
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Federated Fund and the
Fortress Fund. Federated Administrative Services provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors, as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY
NET ASSETS OF THE
MAXIMUM FEE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
The maximum total operating expenses for the Class F Shares are expected to
be 1.12% of the average daily net assets and would be 1.29% absent the voluntary
waiver or reimbursement by Passport of certain operating expenses. The total
operating expenses for the Fortress Fund for the fiscal year ending February 28,
1997 were 1.14% of the average daily net assets and would have been 1.29% absent
voluntary waivers and reimbursements by Federated Management.
RISK FACTORS
Because of the similarities in the investment objectives, policies and
portfolio composition of the Federated Fund and the Fortress Fund, the relative
risks involved in investing in the Federated Fund, as outlined in the section
entitled "Investment Objectives and Policies," can be considered similar to
those associated with the Fortress Fund.
In addition to the risks described above, there are certain risks and
considerations affecting utility companies which an investor should take into
account when investing in these securities. These include various factors which
may adversely affect utility companies including: difficulty in financing large
construction programs during inflationary periods; technological innovations
which may cause existing plants, equipment or products to become less
competitive or obsolete; the impact of natural or manmade disasters (especially
on regional utilities); increased costs or reductions in production due to the
unavailability of appropriate types of fuels; seasonally or occasionally reduced
availability or higher costs of natural gas; and reduced demand due to energy
conservation among consumers. Furthermore, utilities securities tend to be
interest rate sensitive.
The special risk factors of utility securities are described in the Class F
Shares prospectus dated March 29, 1996 and the Fortress Fund's prospectus dated
July 31, 1995. Reference is hereby made to both prospectuses, which set forth in
detail the considerations of utility securities and special risk factors, each
of which is incorporated by reference into this Prospectus/Proxy Statement.
INFORMATION ABOUT THE TRANSACTION
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Directors of the Fortress Fund believes that the proposed
Reorganization will be in the best interests of shareholders of the Fortress
Fund. The Federated Fund and the Fortress Fund have substantially the same
investment objectives and policies and were created as separate funds to permit
investors to purchase shares with different distribution fee options. Both funds
were created before mutual funds in general were permitted to offer multiple
classes of shares. The Directors believe that combining assets of the Federated
Fund and Fortress Fund under a reorganized Federated Utility Fund, Inc. will be
less confusing to investors and financial institutions that distribute shares.
In considering and approving the Reorganization, the Directors considered
several additional factors, including that the implementation of the
Reorganization would: (i) enable investors to choose various purchasing options
that best suits their individual situations, thereby attracting new investors
and assets to the reorganized Federated Utility Fund, Inc. to the benefit of the
shareholders, (ii) facilitate distribution of the reorganized Federated Utility
Fund, Inc., and (iii) maintain the competitive position of the reorganized
Federated Utility Fund, Inc. in relation to other funds that have implemented
similar distribution arrangements. The Directors also took note of the fact that
the portfolio managers of each fund are identical and that their shareholders
will receive similar administrative and shareholder services. Finally, the
Directors noted that the total operating expenses of both the Class F Shares of
the Federated Fund and the Fortress Fund are expected to remain the same.
Accordingly, the Board of Directors of the Fortress Fund, including a
majority of the independent Directors, determined that the Reorganization is in
the best interests of the Fortress Fund and that the interest of its
shareholders would not be diluted as a result of effecting the Reorganization.
Based upon the foregoing considerations, and the fact that shareholders will not
suffer any adverse tax consequences as a result of the Reorganization, the Board
of Directors unanimously voted to approve, and recommend to Fortress Fund
shareholders the approval of, the Reorganization.
The Directors of the Federated Fund, including the independent Directors,
have unanimously concluded that: (i) consummation of the Reorganization is in
the best interests of the Federated Fund and that the interest of its
shareholders would not be diluted as a result of effecting the Reorganization,
and (ii) have unanimously approved the Agreement and Plan of Reorganization.
TERMS OF THE ACQUISITION
The shareholders of the Fortress Fund are being asked to approve the
Reorganization as described in the Agreement and Plan of Reorganization (the
"Plan") between the Federated Fund and the Fortress Fund. The Reorganization
will consist of: (i) the transfer of all assets of the Fortress Fund to the
Federated Fund in exchange solely for Class F Shares of the Federated Fund, (ii)
the distribution of Class F Shares to the shareholders of the Fortress Fund in
liquidation of the Fortress Fund as provided in the Plan, and (iii) the
termination of the Fortress Fund.
If shareholders of the Fortress Fund approve the Reorganization, it will be
consummated promptly after the various conditions to the obligations of each of
the parties are satisfied (the "Closing Date"). On the Closing Date, the
Fortress Fund will transfer all of its assets to the Federated Fund in exchange
for Class F Shares having an aggregate net asset value equal to the aggregate
net assets, less liabilities, of the Fortress Fund. The Fortress Fund will
distribute as of the Closing Date such Class F Shares pro rata to its
shareholders of record, determined as of the valuation date, in exchange for
their shares of the Fortress Fund. Shareholders of the Fortress Fund will earn
their last dividend for the Fortress Fund on the dividend date.
The Class F Shares to be issued to shareholders of the Fortress Fund will
be fully paid, nonassessable when issued and transferable without restriction
and will have no preemptive rights or conversion rights. The net asset value of
the Class F Shares and the value of the Fortress Fund shares and the amount of
their respective liabilities will be determined in accordance with the valuation
procedures set forth in each Fund's respective Articles of Incorporation and
current Prospectus and Statement of Additional Information. The valuation
procedures used by the Class F Shares and the Fortress Fund are precisely the
same.
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance satisfactory
to the Federated Fund and the Fortress Fund as described under the section
"Federal Income Tax Consequences." The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by the
shareholders of the Fortress Fund prior to Closing Date by either party if it
believes that consummation of the Reorganization would not be in the best
interests of its shareholders.
If the shareholders do not approve the Reorganization, the Fortress Fund
will continue to engage in business as an independent entity.
Passport and Federated Management are responsible for the payment of all
expenses of the Reorganization incurred by either party, whether or not the
Reorganization is consummated. Such expenses include, but are not limited to,
accountants' fees, legal fees, registration fees, transfer taxes (if any), the
fees of banks and transfer agents and the costs of preparing, printing, copying
and mailing proxy solicitation materials to the Fortress Fund's shareholders and
the costs of holding the Meeting.
The foregoing description of the Plan entered into between the Federated
Fund and the Fortress Fund is qualified in its entirety by the terms and
provisions of the Plan, a copy of which is attached as Exhibit A and
incorporated by reference herein.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
The Board of Directors has authorized the Federated Fund to offer four
classes of shares: Class A Shares, Class B Shares, Class C Shares, and Class F
Shares. Each share of the Federated Fund gives the shareholder one vote in
Director elections and other matters submitted to shareholders for vote. All
shares of each class have equal voting rights except that in matters affecting
only a particular class, only shareholders of that class are entitled to vote.
The Board of Directors of the Fortress Fund has authorized it to offer only
one class of shares. Each share is entitled to one vote at all meetings of
shareholders.
As Maryland corporations, neither Fund is required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in each of the Fund's operation and for the election of Directors under
certain circumstances. Directors of both Funds may be removed by a majority vote
of the shareholders at a special meeting. A special meeting of shareholders
shall be called by the Directors upon the request of shareholders owning at
least 10% of the outstanding shares.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Reorganization, the Federated Fund and the Fortress
Fund will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to
the Federated Fund and the Fortress Fund, to the effect that, on the basis of
the existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), current administrative rules and court decisions, for federal income
tax purposes: (1) the Reorganization set forth in the Plan will constitute a
tax-free reorganization under Section 368(a)(1)(C) of the Code; (2) no gain or
loss will be recognized by the Federated Fund upon receipt of the Fortress
Fund's assets solely in exchange for the Federated Fund Class F Shares; (3) no
gain or loss will be recognized by the Fortress Fund upon the transfer of its
assets to the Federated Fund in exchange for the Federated Fund Class F Shares
or upon the distribution (whether actual or constructive) of the Federated Fund
Shares to Fortress Fund shareholders in exchange for their shares of the
Fortress Fund; (4) no gain or loss will be recognized by shareholders in the
Fortress Fund upon exchange of their Fortress Fund shares for the Federated Fund
Class F Shares; (5) the tax basis of the Fortress Fund's assets acquired by the
Federated Fund will be the same as the tax basis of such assets to the Fortress
Fund immediately prior to the Reorganization; (6) the tax basis of the Federated
Fund Class F Shares received by each shareholder of the Fortress Fund pursuant
to the Plan will be the same as the tax basis of Fortress Fund shares held by
such shareholder immediately prior to the Reorganization; (7) the holding period
of the assets of the Fortress Fund in the hands of the Federated Fund will
include the period during which those assets were held by the Fortress Fund; and
(8) the holding period of the Federated Fund Class F Shares received by each
shareholder of the Fortress Fund will include the period during which the
Fortress Fund shares exchanged therefor were held by such shareholder, provided
the Fortress Fund shares were held as capital assets on the date of the
Reorganization.
Fund shareholders are advised to consult their own tax advisers as to the
tax consequences of the proposed Reorganization under applicable state, local
and foreign laws.
CAPITALIZATION
The following table shows the capitalization of the Federated Fund and of
the Fortress Fund as of February 29, 1996 and on a pro forma basis as of that
date, giving effect to the proposed Reorganization:
<TABLE>
<CAPTION>
(BALANCES WITHIN THE FOLLOWING TABLE ARE CURRENTLY UNAUDITED.)
PRO FORMA PRO FORMA
FEDERATED FUND FORTRESS FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
Composite Net Assets................... $ 969,200,537 $ 791,477,365 -- $ 1,760,677,902
Net Asset Value Per Share
Class A Shares....................... $ 12.79 -- -- $ 12.79
Class B Shares....................... $ 12.80 -- -- $ 12.80
Class C Shares....................... $ 12.78 -- -- $ 12.78
Class F Shares....................... -- $ 14.15 -- $ 12.79
Composite Shares Outstanding........... 75,783,180 55,943,835 5,942,915 137,669,930
Shares Authorized...................... 1,000,000,000 2,000,000,000 -- 3,000,000,000
</TABLE>
INFORMATION ABOUT THE FEDERATED FUND AND THE FORTRESS FUND
FEDERATED UTILITY FUND, INC.
The Articles of Incorporation of the Federated Fund permit it to offer
separate series of shares representing interests in separate portfolios of
securities. As of the date of this Prospectus/Proxy Statement, the Board of
Directors has established four classes of shares, known as Class A Shares, Class
B Shares, Class C Shares, and Class F Shares.
For a discussion of the factors that materially affected the Federated Fund
during its most recent fiscal year as well as a comparison of its performance to
the Standard & Poor's 500 Index, Standard & Poor's Utility Index, and the Dow
Jones Utility Average during the past ten years, reference is made to the
Federated Fund's most recent Annual Report, dated February 28, 1995, which is
incorporated by reference into this Prospectus/Proxy Statement.
Information about the Class F Shares is contained in its current
Prospectus, dated March 29, 1996, a copy of which is included herewith and
incorporated by reference herein. Additional information about the Federated
Fund is included in its Annual Report dated February 28, 1995, its Semi-Annual
Report dated August 31, 1995, its Statement of Additional Information dated
March 29, 1996 (relating to the Class F Shares Prospectus of the same date), and
the Statement of Additional Information dated March 31, 1996 (relating to this
Prospectus/Proxy Statement) which are incorporated by reference into this
Prospectus/Proxy Statement. Copies of the Annual and Semi-Annual Reports and
Statements of Additional Information, which have been filed with the Securities
and Exchange Commission (the "SEC"), may be obtained without charge by
contacting the Federated Fund at 1-800-245-5051 or by writing to the Federated
Fund at Federated Investors
Tower, Pittsburgh, PA 15222-3779. The Federated Fund is subject to the
informational requirements of the Securities Act of 1933, the Securities
Exchange Act of 1934, and the Investment Company Act of 1940 and, in accordance
therewith, files reports and other information with the SEC. Reports, proxy and
information statements and other information filed by the Federated Fund can be
obtained by calling or writing the Federated Fund and can also be inspected and
copied by the public at the public reference facilities maintained by the SEC in
Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549 and at certain of its regional offices located at Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, IL 60661 and 13th Floor, Seven
World Trade Center, New York, NY 10048. Copies of such material can be obtained
at prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus/Proxy Statement, which constitutes part of a Registration
Statement filed by the Federated Fund with the SEC under the Securities Act of
1933, omits certain of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and the exhibits thereto
for further information with respect to the Federated Fund. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable documents filed with the SEC.
FORTRESS UTILITY FUND, INC.
Information about the Fortress Fund is contained in the Fortress Fund's
current Prospectus dated July 31, 1995, its Statement of Additional Information
dated July 31, 1995 (relating to the Fortress Fund Prospectus of the same date),
the Statement of Additional Information dated March 31, 1996 (relating to this
Prospectus/Proxy Statement), its Annual Report dated May 31, 1995, and its
Semi-Annual Report dated November 30, 1995, which are incorporated by reference
into this Prospectus/Proxy Statement. Copies of such Prospectus, Statements of
Additional Information and Annual and Semi-Annual Reports may be obtained
without charge by calling 1-800-245-5051 or by writing to the Fortress Fund at
Federated Investors Tower, Pittsburgh, PA 15222-3779. The Fortress Fund is
subject to the informational requirements of the Securities Act of 1933, the
Securities Exchange Act of 1934, and the Investment Company Act of 1940 and, in
accordance therewith, files reports and other information with the SEC. Reports,
proxy and information statements and other information filed by the Fortress
Fund can be obtained by calling or writing the Fortress Fund and can also be
inspected at the public reference facilities maintained by the SEC or obtained
at prescribed rates at the addresses listed in the previous section.
VOTING INFORMATION
On March 25, 1996, the Fortress Fund had outstanding 54,951,210 shares of
capital stock, each share being entitled to one vote. Only shareholders of
record at the close of business on that date will be entitled to notice of and
to vote at the Meeting. Approval of the Plan requires the affirmative vote of
the lesser of (i) 67% of the shares of the Fortress Fund present at the meeting,
if holders of more than 50% of the outstanding shares are present or represented
by proxy, or (ii) a majority of
the outstanding shares of the Fortress Fund. The votes of shareholders of the
Federated Fund are not being solicited since their approval is not required in
order to effect the Reorganization.
A majority of the outstanding shares of the Fortress Fund, represented in
person or by proxy, shall be required to constitute a quorum at the Meeting. For
purposes of determining the presence of a quorum and counting votes on the
matters presented, the shares represented by abstentions and "broker non-votes"
will be counted as present, but not as votes cast, at the Meeting. Under the
Investment Company Act of 1940, the affirmative vote necessary to approve the
Plan is determined on the basis of a percentage of votes present at the Meeting,
which would have the effect of treating the abstentions and non-votes as if they
were votes against the proposal.
Shareholders of the Fortress Fund objecting to the Plan have no appraisal
rights under the Fortress Fund's Articles of Incorporation or Maryland law.
Under the Plan, if approved by the shareholders, each Fortress Fund shareholder
will become the owner of Class F Shares of the Federated Fund having a total net
asset value equal to the total net asset value of his or her holdings in the
Fortress Fund at the Closing Date.
The proxy confers discretionary authority on the persons designated therein
to vote on other business not currently contemplated which may properly come
before the Meeting. If the proxy is properly executed and returned before the
Meeting, it will be voted in accordance with any instructions and, if no
specification is made, the proxy will be voted in favor of the Plan. A
shareholder may revoke a proxy at any time prior to use by filing with the
Secretary of the Fortress Fund an instrument revoking the proxy, by submitting a
proxy bearing a later date, or by attending and voting at the meeting.
The cost of preparing and mailing the notice of meeting, proxy card, the
Prospectus/Proxy Statement, and any additional material, along with other
expense relating to the Meeting will be borne by Passport and Federated
Management. Proxy solicitations will be made primarily by mail, but may also be
made by telephone, telegraph, or personal interview conducted by certain
officers or employees of the Fortress Fund. The Adviser will reimburse
custodians, nominees and fiduciaries for reasonable costs incurred by them in
connection with forwarding solicitation materials to beneficial owners of shares
held of record by such persons.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE FEDERATED
FUND AND THE FORTRESS FUND
To the knowledge of the Federated Fund, as of March 25, 1996, no person
owned of record or beneficially, 5% or more of the outstanding shares of the
Federated Fund, except for: Merrill Lynch Pierce Fenner & Smith (as record owner
holding Class A Shares for its clients), Jacksonville, Florida, which was the
owner of approximately 3,996,805 Class A Shares (6.29%) of the Federated Fund;
Merrill Lynch Pierce Fenner & Smith (as record owner holding Class B Shares for
its clients), Jacksonville, Florida, which was the owner of approximately
400,936 Class B Shares (5.89%) of the Federated Fund; and Merrill Lynch Pierce
Fenner & Smith (as record owner holding Class C Shares for its clients),
Jacksonville, Florida, which was the owner of approximately 1,692,846 Class C
Shares (32.27%) of the Federated Fund. To the knowledge of the Fortress Fund, as
of March 25, 1996, no person owned of record or beneficially, 5% or more of the
outstanding shares of the Fortress Fund,
except for Merrill Lynch Pierce Fenner & Smith (as record owner holding shares
for its clients), Jacksonville, Florida, which was the owner of approximately
12,929,788 shares (23.53%) of the Fortress Fund.
As of March 25, 1996, the Directors and officers of the Federated Fund, as
a group, and of the Fortress Fund, as a group, owned less than 1% of the
outstanding shares of the Federated Fund and the Fortress Fund, respectively.
LEGAL MATTERS
Certain legal matters in connection with the Reorganization will be passed
upon by Dickstein, Shapiro, & Morin, L.L.P., Washington, D.C. Charles H. Morin,
Of Counsel to Dickstein, Shapiro, & Morin, L.L.P., is the beneficial owner of
shares of the Federated Fund having an aggregate value in excess of $50,000.
OTHER MATTERS AND DISCRETION OF ATTORNEYS
NAMED IN THE PROXY
Management of the Fortress Fund knows of no other matters that may properly
be, or which are likely to be brought before the Meeting. However, if any other
business shall properly come before the Meeting, the persons named in the proxy
intend to vote thereon in accordance with their best judgment.
If at the time any session of the Meeting is called to order, a quorum is
not present in person or by proxy, the persons named as proxies may vote those
proxies which have been received to adjourn the Meeting to a later date. In the
event that a quorum is present but sufficient votes in favor of one or more of
the proposals have not been received, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies with respect to any such proposal. All such adjournments will require
the affirmative vote of a majority of the Fortress Fund shares present in person
or by proxy at the session of the Meeting to be adjourned. The persons named as
proxies will vote those proxies which they are entitled to vote in favor of the
proposal, in favor of such an adjournment, and will vote those proxies required
to be voted against the proposal, against any such adjournment. A vote may be
taken on one or more of the proposals in this Prospectus/Proxy Statement prior
to any such adjournment if sufficient votes for its approval have been received
and it is otherwise appropriate.
So far as management is presently informed, there is no litigation pending
or threatened against the Fortress Fund.
Whether or not shareholders expect to attend the meeting, all shareholders
are urged to sign, fill in and return the enclosed proxy form promptly.
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated February 29, 1996 (the
"Agreement"), between FEDERATED UTILITY FUND, INC., a Maryland corporation
(hereinafter called the "Acquiring Fund"), and FORTRESS UTILITY FUND, INC., a
Maryland corporation (hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund in exchange solely for Class F Shares of common stock of the
Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after the
Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered open-end
management investment companies and the Acquired Fund owns securities in which
the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock;
WHEREAS, the Board of Directors, including a majority of the Directors who
are not "interested persons" (as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), of the Acquiring Fund has determined that
the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares
is in the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Board of Directors, including a majority of the Directors who
are not "interested persons" (as defined under the 1940 Act), of the Acquired
Fund has determined that the exchange of all of the assets of the Acquired Fund
for Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders and that the interests of the existing shareholders of the Acquired
Fund would not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired
Fund agrees to assign, transfer and convey to the Acquiring Fund all of the
assets of the Acquired Fund, including all securities and cash, other than cash
in an amount necessary to pay any unpaid dividends and distributions as provided
in paragraph 1.5, and the Acquiring Fund agrees in exchange therefor to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such
transaction shall take place at the closing (the "Closing") on the closing date
(the "Closing Date") provided for in paragraph 3.1. In lieu of delivering
certificates for the Acquiring Fund Shares, the Acquiring Fund shall credit the
Acquiring Fund Shares to the Acquired Fund's account on the stock record books
of the Acquiring Fund and shall deliver a confirmation thereof to the Acquired
Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall be
made on the Closing Date and shall be delivered to State Street Bank and Trust
Company, Boston, Massachusetts, the Acquiring Fund's custodian (the
"Custodian"), for the account of the Acquiring Fund, together with proper
instructions and all necessary documents to transfer to the account of the
Acquiring Fund, free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of currency and immediately
available funds payable to the order of the Custodian for the account of the
Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with respect to
assets transferred to the Acquiring Fund thereunder. The Acquired Fund will
transfer to the Acquiring Fund any distributions, rights or other assets
received by the Acquired Fund after the Closing Date as distributions on or with
respect to the securities transferred. Such assets shall be deemed included in
assets transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.5 As soon after the Closing Date as is conveniently practicable, the
Acquired Fund will liquidate and distribute pro rata to the Acquired Fund's
shareholders of record, determined as of the close of business on the Closing
Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1. In addition, each shareholder of
record of the Acquired Fund shall have the right to receive any unpaid dividends
or other distributions which were declared before the Valuation Date (as
hereinafter defined) with respect to the shares of the Acquired Fund that are
held by the shareholder on the Valuation Date. Such liquidation and distribution
will be accomplished by the transfer of the Acquiring Fund Shares then credited
to the account of the Acquired Fund on the books of the Acquiring Fund to open
accounts on the share record books of the Acquiring Fund in the names of the
Acquired Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Acquired Fund will simultaneously be canceled on the books of the
Acquired Fund. Share certificates representing interests in the Acquired Fund
will represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not issue
certificates representing the Acquiring Fund Shares in connection with such
exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued in
the manner described in the Acquiring Fund's current prospectus and statement of
additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund.
1.9 The Acquired Fund will be deregistered as an investment company under
the 1940 Act and dissolved as a Maryland Corporation promptly after the closing
date.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on the
Closing Date (such time and date being hereinafter called the "Valuation Date"),
using the valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on the Valuation Date, using the valuation
procedures set forth in the Acquiring Fund's then-current prospectus or
statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets shall
be determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of one Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value shall be made in accordance with the regular
practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be May 31, 1996, or such later date as the
parties may mutually agree. All acts taking place at the Closing Date shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held at 4:00 p.m. (Eastern
time) at the offices of the Acquiring Fund, Federated Investors Tower,
Pittsburgh, PA 15222-3779, or such other time and/or place as the parties may
mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing
Date shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
3.3 Federated Shareholder Services Company, as transfer agent for each of
the Acquired Fund and the Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Acquired Fund Shareholders and the number and percentage
ownership of outstanding shares owned by each shareholder immediately prior to
the Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired
Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, assumption
agreements, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 The Acquired Fund represents and warrants to the Acquiring Fund as
follows:
(a) The Acquired Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland
and has power to own all of its properties and assets and to carry out
this Agreement.
(b) The Acquired Fund is registered under the 1940 Act, as an
open-end, management investment company, and such registration has not
been revoked or rescinded and is in full force and effect.
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of
its Articles of Incorporation or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability
to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of its properties
or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Securities
and Exchange Commission (the "Commission") hereunder and do not include
any untrue statement of a material fact or omit to state any material
fact required
to be stated therein as necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the Acquired Fund at
May 31, 1995 and 1994, have been audited by Ernst & Young LLP,
independent auditors, and have been prepared in accordance with
generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of
such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) The Acquired Fund's financial statements at November 30, 1995 have
been prepared in accordance with generally accepted accounting
principles.
(i) Since November 30, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(j) At the Closing Date, all Federal and other tax returns and reports
of the Acquired Fund required by law to have been filed by such dates
shall have been filed, and all Federal and other taxes shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns.
(k) For each fiscal year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(l) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. All of the issued and outstanding shares
of the Acquired Fund will, at the time of the Closing, be held by the
persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full right, power
and authority to sell, assign, transfer and deliver the assets to be
transferred by it hereunder.
(n) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the Acquired Fund's Directors and, subject to the
approval of the Acquired Fund Shareholders, this Agreement will
constitute the valid and legally binding obligation of the Acquired
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability
is considered in a proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (other than information therein
that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
(p) The Acquired Fund has entered into an agreement under which
Passport Research, Ltd. and Federated Management will assume the
expenses of the reorganization including accountants' fees, legal fees,
registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquired Fund's
Shareholders and the costs of holding the Special Meeting of
Shareholders.
4.2 The Acquiring Fund represents and warrants to the Acquired Fund as
follows:
(a) The Acquiring Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland
and the Acquiring Fund has the power to carry on its business as it is
now being conducted and to carry out this Agreement.
(b) The Acquiring Fund is registered under the 1940 Act as an
open-end, diversified, management investment company, and such
registration has not been revoked or rescinded and is in full force and
effect.
(c) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of
the Acquiring Fund's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Acquiring Fund is a party or by which it is bound.
(d) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(e) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The Class F Shares of the Acquiring Fund have not previously been
publicly offered. Class F Shares have been created as of March 29, 1996
in order to permit shareholders of the Acquired Fund to exchange into
the Acquiring Fund. There will be no assets in the Class F Shares as of
March 29, 1996.
(g) The Statement of Assets and Liabilities of the Acquiring Fund at
February 28, 1995 and 1994, have been audited by Ernst & Young LLP,
independent auditors, and have been prepared in accordance with
generally accepted accounting principles, and such statements (copies
of which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there
are no known contingent liabilities of the Acquiring Fund as of such
dates not disclosed therein.
(h) Since February 28, 1995, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as disclosed to and accepted by the Acquired Fund.
(i) At the Closing Date, all Federal and other tax returns and reports
of the Acquiring Fund required by law to have been filed by such date
shall have been filed, and all Federal and other taxes shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquiring Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns.
(j) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Acquiring Fund's Directors, and this
Agreement will constitute the valid and legally binding obligation of
the Acquiring Fund enforceable in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and
court decisions with respect thereto, and to general principles of
equity and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(m) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on
the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
such statements were made, not misleading.
(n) The Acquiring Fund has entered into an agreement under which
Passport Research, Ltd. and Federated Management will assume the
expenses of the reorganization including accountants' fees, legal fees,
registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquired Fund's
Shareholders and the costs of holding the Special Meeting of
Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include customary
dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for Federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code and which will be certified by the Acquired Fund's President or Vice
President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Prospectus/Proxy Statement, referred to in paragraph
4.1(n), all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933 Act,
the Securities Exchange Act of 1934, as amended, and the 1940 Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of this
Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and such of
the state Blue Sky or securities laws as it may deem appropriate in order to
continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company taxable
income, if any, plus the excess of its interest income, if any, excludable from
gross income under Code section 103 (a) over its deductions disallowed under
Code sections 265 and 171 (a) (2) for the taxable periods or years ended on or
before May 31, 1995 and for the period from said date to and including the
Closing Date (computed without regard to any deduction for dividends paid), and
all of its net capital gain, if any, realized in taxable periods or years ended
on or before May 31, 1995 and in the period from said date to and including the
Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Acquired
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the Acquired
Fund's portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified by the
Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquiring
Fund, to the effect that the representations and warranties of the Acquired Fund
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the Closing
Date with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the Acquired
Fund, to the effect that the representations and warranties of the Acquiring
Fund made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquired Fund shall reasonably
request.
7.3 There shall not have been any material adverse change in the Acquiring
Fund's financial condition, assets, liabilities or business since the date
hereof other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of any indebtedness, except as otherwise
disclosed to and accepted by the Acquired Fund.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND AND
THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of the Acquired Fund's Articles
of Incorporation and the 1940 Act.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in
all material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit would
not involve a risk of a material adverse effect on the assets or properties of
the Acquiring Fund or the Acquired Fund, provided that either party hereto may
for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Acquiring Fund and the Acquired Fund shall have received an
opinion of Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that
for Federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets in exchange for
the Acquiring Fund Shares and the distribution of the Acquiring Fund
Shares to the Acquired Fund Shareholders in liquidation of the Acquired
Fund will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares;
(c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares or upon the distribution (whether actual
or constructive) of the Acquiring Fund Shares to Acquired Fund
Shareholders in exchange for their shares of the Acquired Fund;
(d) No gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares;
(e) The tax basis of the Acquired Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the
same as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization;
(g) The holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will include the period during which those assets
were held by the Acquired Fund; and
(h) The holding period of the Acquiring Fund Shares to be received by
each Acquired Fund Shareholder will include the period during which the
Acquired Fund shares exchanged therefor were held by such shareholder
(provided the Acquired Fund shares were held as capital assets on the
date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution by the Board of Directors of the Acquired
Fund or the Board of Directors of the Acquiring Fund at any time prior to the
Closing Date (and notwithstanding any vote of the shareholders of the Acquired
Fund) if circumstances should develop that, in the opinion of either of the
parties' Board of Directors, make proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the directors, officers or shareholders of the Acquiring Fund or of
the Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions may
be waived by the Board of Directors of the Acquiring Fund or of the Acquired
Fund, if in the judgment of either, such waiver will not have a material adverse
effect on the benefits intended under this Agreement to the shareholders of the
Acquiring Fund or of the Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and merges
and supersedes all prior discussions, agreements, and understandings of every
kind and nature between them relating to the subject matter hereof. Neither
party shall be bound by any condition, definition, warranty or representation,
other than as set forth or provided in this Agreement or as may be set forth in
a later writing signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with the
internal laws of the State of Maryland, without giving effect to principles of
conflict of laws.
11.4 This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have each
caused this Agreement and Plan of Reorganization to be executed and attested on
its behalf by its duly authorized representatives as of the date first above
written.
Acquired Fund:
FORTRESS UTILITY FUND, INC.
Attest:
By: /s/ John W. McGonigle
/s/ Charles H. Field Name: John W. McGonigle
Assistant Secretary
Title: Executive Vice President
Acquiring Fund:
FEDERATED UTILITY FUND, INC.
Attest:
By: /s/ John W. McGonigle
/s/ Charles H. Field Name: John W. McGonigle
Assistant Secretary
Title: Executive Vice President
Cusip 349561100
G01635-01 (4/96)
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1996
Acquisition of the Assets of
FORTRESS UTILITY FUND, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1-800-245-5051
By and In Exchange for F Shares of
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1-800-245-5051
This Statement of Additional Information dated March 31, 1996, is not
a prospectus. A Prospectus/Proxy Statement dated March 31, 1996,
related to the above-referenced matter may be obtained from Federated
Utility Fund, Inc., Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. This Statement of Additional Information
should be read in conjunction with such Prospectus/Proxy Statement.
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Statement of Additional Information of
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.),
dated March 29, 1996 1
- ---------------------------------------------------------------
Statement of Additional Information of
Fortress Utility Fund, Inc.,
dated July 31, 1995 1
- ---------------------------------------------------------------
Financial Statements of Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.),
dated February 28, 1995 1
- ---------------------------------------------------------------
Financial Statements of Fortress Utility Fund, Inc.,
dated May 31, 1995 1
- ---------------------------------------------------------------
Financial Statements (unaudited) of
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.),
dated August 31, 1995 1
- ---------------------------------------------------------------
Financial Statements (unaudited) of
Fortress Utility Fund, Inc.,
dated November 30, 1995 1
- ---------------------------------------------------------------
Pro Forma Financial Statements 2
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
The Statement of Additional Information of Federated Utility Fund, Inc. (the
"Federated Fund"), dated March 29, 1996, is incorporated herein by reference to
Post-Effective Amendment No. 14 to the Federated Fund's Registration Statement
on Form N-1A (File Nos. 33-13388; 811-5114) which was filed with the Securities
and Exchange Commission on or about February 29, 1996. A copy may be obtained
from the Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number 1-800-245-5051.
The Statement of Additional Information of Fortress Utility Fund, Inc. (the
"Fortress Fund"), dated July 31, 1995, is incorporated herein by reference to
Post-Effective Amendment No. 11 to the Fortress Fund's Registration Statement on
Form N-1A (File Nos. 33-10209; 811-4530) which was filed with the Securities and
Exchange Commission on or about July 26, 1995.
The audited financial statements of the Federated Fund, dated February 28, 1995,
are incorporated herein by reference to the Federated Fund's Annual Report dated
February 28, 1995, which was filed with the Securities and Exchange Commission
on or about April 28, 1995. (File Nos. 33-13388; 811-5114)
The audited financial statements of the Fortress Fund, dated May 31, 1995, are
incorporated herein by reference to the Fortress Fund's Annual Report dated May
31, 1995, which was filed with the Securities and Exchange Commission on or
about July 28, 1995. (File Nos. 33-10209; 811-4530)
The unaudited financial statements of the Federated Fund, dated August 31, 1995,
are incorporated herein by reference to the Federated Fund's Semi-Annual Report
dated August 31, 1995, which was filed with the Securities and Exchange
Commission on or about November 1, 1995. (File Nos. 33-13388; 811-5114)
The unaudited financial statements of the Fortress Fund, dated November 30,
1995, are incorporated herein by reference to the Fortress Fund's Semi-Annual
Report dated November 30, 1995, which was filed with the Securities and Exchange
Commission on or about January 30, 1996. (File Nos. 33-10209; 811-4530)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS FEDERATED FORTRESS
UTILITY FUND, UTILITY PRO FORMA UTILITY FUND, UTILITY
INC. FUND, INC. COMBINED INC. FUND, INC.
- -------------- -------------- -------------- -------------- --------------
VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS
- -------------- -------------- -------------- ------------------------------------------- -------------- --------------
<C> <C> <C> <S> <C> <C>
COMMON STOCKS--66.5%
-------------------------------------------
CONSUMER NON-DURABLES--1.0%
-------------------------------------------
118,000 100,000 218,000 Philip Morris Cos., Inc. $ 8,805,750 $ 7,462,500
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: CENTRAL--13.6%
-------------------------------------------
660,000 591,700 1,251,700 Cinergy Corp. 16,912,500 15,162,313
-------------------------------------------
776,000 694,400 1,470,400 CMS Energy Corp. 19,109,000 17,099,600
-------------------------------------------
714,600 629,400 1,344,000 DPL, Inc. 15,899,850 14,004,150
-------------------------------------------
678,000 596,600 1,274,600 Illinova Corp. 17,034,750 14,989,575
-------------------------------------------
493,200 444,000 937,200 NIPSCO Industries, Inc. 16,152,300 14,541,000
-------------------------------------------
550,000 494,900 1,044,900 Utilicorp United, Inc. 14,918,750 13,424,163
-------------------------------------------
550,000 464,500 1,014,500 Western Resources, Inc. 16,637,500 14,051,125
------------------------------------------- -------------- --------------
TOTAL 116,664,650 103,271,926
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: EAST--9.3%
-------------------------------------------
429,000 376,000 805,000 Baltimore Gas & Electric Co. 11,261,250 9,870,000
-------------------------------------------
750,000 674,800 1,424,800 DQE, Inc. 17,906,250 16,110,850
-------------------------------------------
550,000 493,900 1,043,900 General Public Utilities 15,743,750 14,137,888
-------------------------------------------
921,900 804,600 1,726,500 Peco Energy Co. 24,545,587 21,422,475
-------------------------------------------
370,000 327,600 697,600 Public Service Enterprises Group, Inc. 10,175,000 9,009,000
------------------------------------------- -------------- --------------
TOTAL 79,631,837 70,550,213
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: SOUTH--10.1%
-------------------------------------------
527,400 463,400 990,800 Duke Power Co. 21,425,625 18,825,625
-------------------------------------------
350,000 293,400 643,400 Florida Progress Corp. 10,631,250 8,912,025
-------------------------------------------
550,500 486,600 1,037,100 FPL Group, Inc. 21,400,688 18,916,575
-------------------------------------------
750,000 672,900 1,422,900 Southern Co. 15,843,750 14,215,013
-------------------------------------------
512,700 454,700 967,400 Texas Utilities Co. 17,816,325 15,800,825
------------------------------------------- -------------- --------------
TOTAL 87,117,638 76,670,063
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: WEST--4.0%
-------------------------------------------
780,000 699,300 1,479,300 Pacificorp 14,137,500 12,674,813
-------------------------------------------
803,000 716,100 1,519,100 Pinnacle West Capital Corp. 19,974,625 17,812,988
------------------------------------------- -------------- --------------
TOTAL 34,112,125 30,487,801
------------------------------------------- -------------- --------------
ENERGY MINERALS--1.4%
-------------------------------------------
175,000 146,700 321,700 Exxon Corp. 12,031,250 10,085,625
------------------------------------------- -------------- --------------
FINANCE--1.9%
-------------------------------------------
499,400 448,900 948,300 Meditrust, REIT 16,417,775 14,757,588
------------------------------------------- -------------- --------------
<CAPTION>
PRO FORMA
COMBINED
- -------------
VALUE IN
U.S. DOLLARS
- -------------
<C>
$ 16,268,250
- -------------
32,074,813
36,208,600
29,904,000
32,024,325
30,693,300
28,342,913
30,688,625
- -------------
219,936,576
- -------------
21,131,250
34,017,100
29,881,638
45,968,062
19,184,000
- -------------
150,182,050
- -------------
40,251,250
19,543,275
40,317,263
30,058,763
33,617,150
- -------------
163,787,701
- -------------
26,812,313
37,787,613
- -------------
64,599,926
- -------------
22,116,875
- -------------
31,175,363
- -------------
</TABLE>
FEDERATED UTILITY FUND, INC.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS FEDERATED FORTRESS
UTILITY FUND, UTILITY PRO FORMA UTILITY FUND, UTILITY
INC. FUND, INC. COMBINED INC. FUND, INC.
- -------------- -------------- -------------- -------------- --------------
VALUE IN VALUE IN
SHARES SHARES SHARES U.S. DOLLARS U.S. DOLLARS
- -------------- -------------- -------------- ------------------------------------------- -------------- --------------
<C> <C> <C> <S> <C> <C>
COMMON STOCKS--CONTINUED
-------------------------------------------
MAJOR U.S. TELECOMMUNICATIONS--9.5%
-------------------------------------------
500,000 435,000 935,000 AT&T Corp. $ 28,250,000 $ 24,577,500
-------------------------------------------
206,000 184,800 390,800 BellSouth Corp. 14,162,500 12,705,000
-------------------------------------------
720,000 620,000 1,340,000 GTE Corp. 26,370,000 22,707,500
-------------------------------------------
450,000 391,200 841,200 Pacific Telesis Group 12,768,750 11,100,300
------------------------------------------- -------------- --------------
TOTAL 81,551,250 71,090,300
------------------------------------------- -------------- --------------
NATURAL GAS DISTRIBUTION--4.4%
-------------------------------------------
240,800 119,500 360,300 Consolidated Natural Gas Co. 9,300,900 4,615,688
-------------------------------------------
708,200 620,700 1,328,900 MCN Corp. 13,190,225 11,560,538
-------------------------------------------
608,200 534,500 1,142,700 Pacific Enterprises 14,596,800 12,828,000
-------------------------------------------
194,800 -- 194,800 UGI Corp. 4,163,850 --
------------------------------------------- -------------- --------------
TOTAL 41,251,775 29,004,226
------------------------------------------- -------------- --------------
NON-U.S. UTILITIES--3.3%
-------------------------------------------
566,000 355,210 921,210 National Power Co. PLC, ADR 8,419,250 5,283,749
-------------------------------------------
225,000 201,500 426,500 Telefonica de Espana, ADR 9,140,625 8,185,938
-------------------------------------------
750,000 672,900 1,422,900 Westcoast Energy, Inc. 11,437,500 10,261,725
------------------------------------------- -------------- --------------
TOTAL 28,997,375 23,731,412
------------------------------------------- -------------- --------------
OIL/GAS TRANSMISSION--7.4%
-------------------------------------------
450,000 401,000 851,000 Enron Corp. 15,131,250 13,483,625
-------------------------------------------
344,400 315,000 659,400 Enron Global Power & Pipelines, L.L.C. 8,007,300 7,323,750
-------------------------------------------
209,900 187,800 397,700 Panhandle Eastern Corp. 5,247,500 4,695,000
-------------------------------------------
750,000 671,900 1,421,900 Sonat, Inc. 23,812,500 21,332,825
-------------------------------------------
300,000 268,000 568,000 Williams Companies, Inc. (The) 10,987,500 9,815,500
------------------------------------------- -------------- --------------
TOTAL 63,186,050 56,650,700
------------------------------------------- -------------- --------------
OTHER TELEPHONE/COMMUNICATIONS--0.6%
-------------------------------------------
192,000 101,400 293,400 Southern New England Telecommunications 6,456,000 3,409,575
------------------------------------------- -------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST
$973,947,747) 576,223,475 497,171,929
------------------------------------------- -------------- --------------
PREFERRED STOCKS--20.2%
-------------------------------------------
CONSUMER DURABLES--0.6%
-------------------------------------------
407,600 300,000 707,600 Kaufman & Broad Homes Corp., Conv. Pfd.,
Series B, $1.52 5,808,300 4,275,000
------------------------------------------- -------------- --------------
CONSUMER NON-DURABLES--3.9%
-------------------------------------------
5,500,000 5,000,000 10,500,000 RJR Nabisco Holdings Corp., Conv. Pfd.,
Series C, $.60 33,000,000 30,000,000
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: CENTRAL--0.4%
-------------------------------------------
188,450 163,200 351,650 Toledo Edison Co., ARPS, Series B 3,863,225 3,376,350
------------------------------------------- -------------- --------------
ELECTRIC UTILITIES: EAST--0.7%
-------------------------------------------
335,000 150,000 485,000 Niagara Mohawk Power Corp., ARPS,
Series C 7,788,750 3,487,500
------------------------------------------- -------------- --------------
<CAPTION>
PRO FORMA
COMBINED
- -------------
VALUE IN
U.S. DOLLARS
- -------------
<C>
$ 52,827,500
26,867,500
49,077,500
23,869,050
- -------------
152,641,550
- -------------
13,916,588
24,750,763
27,424,800
4,163,850
- -------------
70,256,001
- -------------
13,702,999
17,326,563
21,699,225
- -------------
52,728,787
- -------------
28,614,875
15,331,050
9,942,500
45,145,325
20,803,000
- -------------
119,836,750
- -------------
9,865,575
- -------------
1,073,395,404
- -------------
10,083,300
- -------------
63,000,000
- -------------
7,239,575
- -------------
11,276,250
- -------------
</TABLE>
FEDERATED UTILITY FUND, INC.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS FEDERATED FORTRESS
UTILITY FUND, UTILITY PRO FORMA UTILITY FUND, UTILITY
INC. FUND, INC. COMBINED INC. FUND, INC.
- -------------- -------------- -------------- -------------- --------------
SHARES OR SHARES OR SHARES OR
PRINCIPAL PRINCIPAL PRINCIPAL VALUE IN VALUE IN
AMOUNT AMOUNT AMOUNT U.S. DOLLARS U.S. DOLLARS
- -------------- -------------- -------------- ------------------------------------------- -------------- --------------
<C> <C> <C> <S> <C> <C>
PREFERRED STOCKS--CONTINUED
-------------------------------------------
ELECTRIC UTILITIES: SOUTH--0.3%
-------------------------------------------
42,000 11,275 53,275 Texas Utilities Electric Co., ARPS, Series
A $ 3,801,000 $ 1,020,388
------------------------------------------- -------------- --------------
ENERGY MINERALS--1.0%
-------------------------------------------
152,000 142,000 294,000 (a) Occidental Petroleum Corp., Conv. Pfd.,
$3.88 8,531,000 7,969,750
------------------------------------------- -------------- --------------
FINANCE--3.5%
-------------------------------------------
20,200 18,700 38,900 Allstate Corp. 818,100 757,350
-------------------------------------------
239,200 213,000 452,200 Merrill Lynch & Co., Inc., STRYPES, Series
MGIC, $3.12 12,976,600 11,555,250
-------------------------------------------
323,000 304,000 627,000 Sunamerica, Inc., Conv. Pfd., Series D,
$2.78 15,342,500 14,440,000
------------------------------------------- -------------- --------------
TOTAL 29,137,200 26,752,600
------------------------------------------- -------------- --------------
NON-ENERGY MINERALS--1.7%
-------------------------------------------
260,000 245,000 505,000 Reynolds Metals Co., PRIDES, $3.30 13,942,500 13,138,125
------------------------------------------- -------------- --------------
NON-U.S. UTILITIES--2.0%
-------------------------------------------
340,000 310,000 650,000 (a) Cointel, Telefonica de Argentina SA,
PRIDES, $5.04 17,000,000 15,500,000
------------------------------------------- -------------- --------------
OIL/GAS TRANSMISSION--1.0%
-------------------------------------------
122,500 111,250 233,750 Williams Companies, Inc. (The), Conv. Pfd.,
$7.00 8,085,000 7,342,500
------------------------------------------- -------------- --------------
PROCESS INDUSTRIES--1.6%
-------------------------------------------
403,500 354,300 757,800 James River Corp. of Virginia, DECS, Series
P, $1.55 13,365,938 11,736,188
------------------------------------------- -------------- --------------
PRODUCER MANUFACTURING--2.5%
-------------------------------------------
1,533,000 1,378,000 2,911,000 (a) Westinghouse Electric Corp., PEPs,
Series C, $1.30 20,841,135 18,733,910
------------------------------------------- -------------- --------------
TECHNOLOGY SERVICES--1.0%
-------------------------------------------
135,100 120,500 255,600 General Motors Corp., Conv. Pfd., Series C,
$3.25 8,967,262 7,998,188
------------------------------------------- -------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$316,123,478) 174,131,310 151,330,499
------------------------------------------- -------------- --------------
CORPORATE BONDS--8.6%
-------------------------------------------
CONSUMER SERVICES--1.1%
-------------------------------------------
$ 17,810,000 $ 17,265,000 $ 35,075,000 (a) Rogers Communications, Inc., Conv.
Deb., 2.00%, 11/26/2005 9,083,100 8,805,150
------------------------------------------- -------------- --------------
ENERGY MINERALS--1.4%
-------------------------------------------
10,000,000 8,700,000 18,700,000 Pennzoil Co., Conv. Deb., 6.50%, 1/15/2003 12,060,300 10,492,461
------------------------------------------- -------------- --------------
FINANCE--1.0%
-------------------------------------------
7,515,000 6,470,000 13,985,000 Equitable Cos., Inc., Conv. Sub. Deb.,
6.125%, 12/15/2024 8,803,822 7,579,605
------------------------------------------- -------------- --------------
<CAPTION>
PRO FORMA
COMBINED
- -------------
VALUE IN
U.S. DOLLARS
- -------------
<C>
$ 4,821,388
- -------------
16,500,750
- -------------
1,575,450
24,531,850
29,782,500
- -------------
55,889,800
- -------------
27,080,625
- -------------
32,500,000
- -------------
15,427,500
- -------------
25,102,126
- -------------
39,575,045
- -------------
16,965,450
- -------------
325,461,809
- -------------
17,888,250
- -------------
22,552,761
- -------------
16,383,427
- -------------
</TABLE>
FEDERATED UTILITY FUND, INC.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS FEDERATED FORTRESS
UTILITY FUND, UTILITY PRO FORMA UTILITY FUND, UTILITY
INC. FUND, INC. COMBINED INC. FUND, INC.
- -------------- -------------- -------------- -------------- --------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OR AMOUNT OR AMOUNT OR
FOREIGN FOREIGN FOREIGN
CURRENCY PAR CURRENCY PAR CURRENCY PAR VALUE IN VALUE IN
AMOUNT AMOUNT AMOUNT U.S. DOLLARS U.S. DOLLARS
- -------------- -------------- -------------- ------------------------------------------- -------------- --------------
<C> <C> <C> <S> <C> <C>
CORPORATE BONDS--CONTINUED
-------------------------------------------
HEALTH TECHNOLOGY--1.9%
-------------------------------------------
$ 39,000,000 $ 37,250,000 $ 76,250,000 Roche Holdings, Inc., Conv. LYON, 7.00%
accrual, 4/20/2010 $ 15,356,250 $ 14,667,188
------------------------------------------- -------------- --------------
NON-U.S. UTILITIES--3.2%
-------------------------------------------
20,000,000,000 20,000,000,000 40,000,000,000 Softe SA, Conv. Bond, 4.25%, 7/30/1998 14,677,826 14,677,819
-------------------------------------------
12,000,000 12,000,000 24,000,000 (a) Telekom Malaysia Berhad, Conv. Bond,
4.00%, 10/3/2004 10,920,000 10,920,000
------------------------------------------- -------------- --------------
TOTAL 25,597,826 25,597,819
------------------------------------------- -------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$137,587,881) 70,901,298 67,142,223
------------------------------------------- -------------- --------------
(B) REPURCHASE AGREEMENT--4.2%
-------------------------------------------
35,605,000 31,855,000 67,460,000 J.P. Morgan Securities, Inc., 5.83%, dated
8/31/1995, due 9/1/1995 (at amortized cost) 35,605,000 31,855,000
------------------------------------------- -------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST
$1,495,119,106)(C) $856,861,083 $747,499,651
------------------------------------------- -------------- --------------
<CAPTION>
PRO FORMA
COMBINED
- -------------
VALUE IN
U.S. DOLLARS
- -------------
<C>
$ 30,023,438
- -------------
29,355,645
21,840,000
- -------------
51,195,645
- -------------
138,043,521
- -------------
67,460,000
- -------------
$1,604,360,734
- -------------
</TABLE>
(a) Restricted securities--Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 7.95% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $1,495,119,106.
The net unrealized appreciation of investments on a federal tax basis
amounts to $109,241,628 which is comprised of $139,834,775 appreciation and
$30,593,147 depreciation at August 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,613,134,248) at August 31, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
ARPS--Adjustable Rate Preferred Stock
DECS--Dividend Enhanced Convertible Stock
LYON--Liquid Yield Option Note
PEPs--Participating Equity Preferred Stock
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
STRYPES--Structured Yield Product Exchangeable for Stock
(See Notes to Pro Forma Financial Statements)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS
UTILITY UTILITY PRO FORMA PRO FORMA
FUND, INC. FUND, INC. ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
- --------------------------------------------------------------------------
Investments in securities, at value (identified cost, $1,495,119,106) $856,861,083 $747,499,651 $ -- $1,604,360,734
- --------------------------------------------------------------------------
Cash 24,996 -- -- 24,996
- --------------------------------------------------------------------------
Income receivable 4,622,794 3,984,141 -- 8,606,935
- --------------------------------------------------------------------------
Receivable for investments sold 3,242,599 4,872,662 -- 8,115,261
- --------------------------------------------------------------------------
Receivable for shares sold 1,749,438 454,141 -- 2,203,579
- -------------------------------------------------------------------------- ----------- ----------- -------------
Total assets 866,500,910 756,810,595 -- 1,623,311,505
- --------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------
Payable to Bank -- 2,610,762 -- 2,610,762
- --------------------------------------------------------------------------
Payable for investments purchased 1,779,823 1,466,560 -- 3,246,383
- --------------------------------------------------------------------------
Income distributions payable -- 1,277,430 -- 1,277,430
- --------------------------------------------------------------------------
Payable for shares redeemed 1,663,687 833,501 -- 2,497,188
- --------------------------------------------------------------------------
Accrued expenses 368,841 176,653 -- 545,494
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Total liabilities 3,812,351 6,364,906 -- 10,177,257
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
NET ASSETS $862,688,559 $750,445,689 -- $1,613,134,248
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------
Paid in capital $799,287,015 $703,340,198 -- 1,502,627,213
- --------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 63,468,619 45,768,684 -- 109,237,303
- --------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency
transactions (1,294,199) (17,175,285) -- (18,469,484)
- --------------------------------------------------------------------------
Undistributed net investment income 1,227,124 18,512,092 -- 19,739,216
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Total Net Assets $862,688,559 $750,445,689 -- $1,613,134,248
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
NET ASSETS:
- --------------------------------------------------------------------------
Class A Shares $754,791,714 -- -- $ 754,791,714
- --------------------------------------------------------------------------
Class B Shares $49,035,535 -- -- $ 49,035,535
- --------------------------------------------------------------------------
Class C Shares $58,861,310 -- -- $ 58,861,310
- --------------------------------------------------------------------------
Class F Shares -- $750,445,689 -- $ 750,445,689
- --------------------------------------------------------------------------
SHARES OUTSTANDING:
- --------------------------------------------------------------------------
Class A Shares 65,035,201 -- -- 65,035,201
- --------------------------------------------------------------------------
Class B Shares 4,227,437 -- -- 4,227,437
- --------------------------------------------------------------------------
Class C Shares 5,076,233 -- -- 5,076,233
- --------------------------------------------------------------------------
Class F Shares -- 58,678,360 5,988,414(a) 64,666,774
- --------------------------------------------------------------------------
Table continued on next page.
</TABLE>
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS
UTILITY UTILITY PRO FORMA PRO FORMA
FUND, INC. FUND, INC. ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------
CLASS A SHARES:
- --------------------------------------------------------------------------
Net Asset Value Per Share $ 11.61 -- -- $ 11.61
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Offering Price Per Share (100/94.5 of $11.61)* $ 12.29 -- -- $ 12.29
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Redemption Proceeds Per Share $ 11.61 -- -- $ 11.61
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
CLASS B SHARES:
- --------------------------------------------------------------------------
Net Asset Value Per Share $ 11.60 -- -- $ 11.60
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Offering Price Per Share $ 11.60 -- -- $ 11.60
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Redemption Proceeds Per Share (94.5/100 of $11.60)** $ 10.96 -- -- $ 10.96
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
CLASS C SHARES:
- --------------------------------------------------------------------------
Net Asset Value Per Share $ 11.60 -- -- $ 11.60
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Offering Price Per Share $ 11.60 -- -- $ 11.60
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Redemption Proceeds Per Share (99/100 of $11.60)** $ 11.48 -- -- $ 11.48
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
CLASS F SHARES:
- --------------------------------------------------------------------------
Net Asset Value Per Share -- $ 12.79 -- $ 11.60
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Offering Price Per Share (100/99 of $11.60)* -- $ 12.92 -- $ 11.72
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
Redemption Proceeds Per Share (99/100 of $11.60)** -- $ 12.66 -- $ 11.48
- -------------------------------------------------------------------------- ----------- ----------- ----------- -------------
</TABLE>
(a) Adjustment to reflect share balance as a result of the combination, based
on an exchange ratio of 1.1025862 ($12.79/$11.60).
* See "What Shares Cost" in the prospectus.
** See " Redeeming Shares" in the prospectus.
(See Notes to Pro Forma Financial Statements)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS
UTILITY UTILITY PRO FORMA
FUND, INC. FUND, INC. ADJUSTMENTS NOTES
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $113,808) $22,184,831 $10,781,500 $ --
- ---------------------------------------------------------------------
Interest 2,465,218 479,982 --
- --------------------------------------------------------------------- ---------- ---------- ------------
Total income 24,650,049 11,261,482 --
- ---------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee 3,177,204 2,892,997 --
- ---------------------------------------------------------------------
Administrative personnel and services fee 320,686 292,000 --
- ---------------------------------------------------------------------
Custodian fees 65,495 53,838 (39,333) (b)
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 576,813 553,765 --
- ---------------------------------------------------------------------
Directors'/Trustees' fees 9,936 10,614 (9,550) (e)
- ---------------------------------------------------------------------
Auditing fees 10,488 8,967 (8,967) (f)
- ---------------------------------------------------------------------
Legal fees 15,624 4,941 (3,565) (d)
- ---------------------------------------------------------------------
Portfolio accounting fees 92,607 57,684 (61,791) (a)
- ---------------------------------------------------------------------
Distribution services fee--Class B Shares 128,767 -- --
- ---------------------------------------------------------------------
Distribution services fee--Class C Shares 222,110 -- --
- ---------------------------------------------------------------------
Shareholder services fee--Class A Shares 942,109 -- --
- ---------------------------------------------------------------------
Shareholder services fee--Class B Shares 42,922 -- --
- ---------------------------------------------------------------------
Shareholder services fee--Class C Shares 74,037 -- --
- ---------------------------------------------------------------------
Shareholder services fee--Class F Shares -- 964,332 --
- ---------------------------------------------------------------------
Share registration costs 48,400 17,202 --
- ---------------------------------------------------------------------
Printing and postage 110,768 48,495 (39,263) (c)
- ---------------------------------------------------------------------
Insurance premiums 9,016 8,967 (6,983) (g)
- ---------------------------------------------------------------------
Taxes 90,528 79,971 (40,499) (g)
- ---------------------------------------------------------------------
Miscellaneous 1,656 7,869 (1,525) (g)
- --------------------------------------------------------------------- ---------- ---------- ------------
Total expenses 5,939,166 5,001,642 (211,476)
- --------------------------------------------------------------------- ---------- ---------- ------------
Waivers--
- ---------------------------------------------------------------------
Waiver of investment advisory fee (712,362) (394,448) 44,083 (h)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (30,068) -- --
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (14,807) -- --
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class F Shares -- (115,720) --
- --------------------------------------------------------------------- ---------- ---------- ------------
Total Waivers (757,237) (510,168) 44,083
- --------------------------------------------------------------------- ---------- ---------- ------------
Net expenses 5,181,929 4,491,474 (167,393)
- --------------------------------------------------------------------- ---------- ---------- ------------
Net investment income 19,468,120 6,770,008 167,393
- --------------------------------------------------------------------- ---------- ---------- ------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 18,853,539 10,696,289 --
- ---------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 26,226,713 27,681,914 --
- --------------------------------------------------------------------- ---------- ---------- ------------
Net realized and unrealized gain on investments and foreign
currency 45,080,252 38,378,203 --
- --------------------------------------------------------------------- ---------- ---------- ------------
Change in net assets resulting from operations $64,548,372 $45,148,211 $ 167,393
- --------------------------------------------------------------------- ---------- ---------- ------------
<CAPTION>
PRO FORMA
COMBINED
<S> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $113,808) $32,966,331
- ---------------------------------------------------------------------
Interest 2,945,200
- --------------------------------------------------------------------- -----------
Total income 35,911,531
- ---------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee 6,070,201
- ---------------------------------------------------------------------
Administrative personnel and services fee 612,686
- ---------------------------------------------------------------------
Custodian fees 80,000
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 1,130,578
- ---------------------------------------------------------------------
Directors'/Trustees' fees 11,000
- ---------------------------------------------------------------------
Auditing fees 10,488
- ---------------------------------------------------------------------
Legal fees 17,000
- ---------------------------------------------------------------------
Portfolio accounting fees 88,500
- ---------------------------------------------------------------------
Distribution services fee--Class B Shares 128,767
- ---------------------------------------------------------------------
Distribution services fee--Class C Shares 222,110
- ---------------------------------------------------------------------
Shareholder services fee--Class A Shares 942,109
- ---------------------------------------------------------------------
Shareholder services fee--Class B Shares 42,922
- ---------------------------------------------------------------------
Shareholder services fee--Class C Shares 74,037
- ---------------------------------------------------------------------
Shareholder services fee--Class F Shares 964,332
- ---------------------------------------------------------------------
Share registration costs 65,602
- ---------------------------------------------------------------------
Printing and postage 120,000
- ---------------------------------------------------------------------
Insurance premiums 11,000
- ---------------------------------------------------------------------
Taxes 130,000
- ---------------------------------------------------------------------
Miscellaneous 8,000
- --------------------------------------------------------------------- -----------
Total expenses 10,729,332
- --------------------------------------------------------------------- -----------
Waivers--
- ---------------------------------------------------------------------
Waiver of investment advisory fee (1,062,727)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (30,068)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (14,807)
- ---------------------------------------------------------------------
Waiver of shareholder services fee--Class F Shares (115,720)
- --------------------------------------------------------------------- -----------
Total Waivers (1,223,322)
- --------------------------------------------------------------------- -----------
Net expenses 9,506,010
- --------------------------------------------------------------------- -----------
Net investment income 26,405,521
- --------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 29,549,828
- ---------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 53,908,627
- --------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments and foreign
currency 83,458,455
- --------------------------------------------------------------------- -----------
Change in net assets resulting from operations $109,863,976
- --------------------------------------------------------------------- -----------
</TABLE>
(See legend to the Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
PRO FORMA COMBINING STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FORTRESS
UTILITY UTILITY PRO FORMA
FUND, INC. FUND, INC. ADJUSTMENTS NOTES
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------
Dividends (net of foreign taxes withheld of $552,152) $ 47,928,315 $ 35,060,117 $ --
- --------------------------------------------------------------
Interest 3,261,445 214,249 --
- -------------------------------------------------------------- ------------ ------------ --------------
Total income 51,189,760 35,274,366 --
- --------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------
Investment advisory fee 6,347,619 6,360,742 --
- --------------------------------------------------------------
Administrative personnel and services fee 640,686 641,163 --
- --------------------------------------------------------------
Custodian fees 163,731 172,754 (87,985) (b)
- --------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 1,060,365 1,096,288 --
- --------------------------------------------------------------
Directors'/Trustees' fees 18,391 20,717 (18,108) (e)
- --------------------------------------------------------------
Auditing fees 20,913 17,500 (17,500) (f)
- --------------------------------------------------------------
Legal fees 59,593 13,936 (13,529) (d)
- --------------------------------------------------------------
Portfolio accounting fees 68,362 56,789 (36,651) (a)
- --------------------------------------------------------------
Distribution services fee--Class B Shares 21,567 -- --
- --------------------------------------------------------------
Distribution services fee--Class C Shares 453,766 -- --
- --------------------------------------------------------------
Shareholder services fee--Class A Shares 1,900,244 -- --
- --------------------------------------------------------------
Shareholder services fee--Class B Shares 7,189 -- --
- --------------------------------------------------------------
Shareholder services fee--Class C Shares 151,255 -- --
- --------------------------------------------------------------
Shareholder services fee--Class F Shares -- 1,814,932 --
- --------------------------------------------------------------
Share registration costs 116,258 54,350 --
- --------------------------------------------------------------
Printing and postage 254,502 96,376 (60,878) (c)
- --------------------------------------------------------------
Insurance premiums 17,886 17,200 (13,086) (g)
- --------------------------------------------------------------
Taxes 180,393 186,500 (109,893) (g)
- --------------------------------------------------------------
Miscellaneous 1,559 14,393 (3,952) (g)
- -------------------------------------------------------------- ------------ ------------ --------------
Total expenses 11,484,279 10,563,640 (361,582)
- -------------------------------------------------------------- ------------ ------------ --------------
Waivers--Waiver of investment advisory fee (1,683,310) (886,832) (212,027) (h)
- -------------------------------------------------------------- ------------ ------------ --------------
Net expenses 9,800,969 9,676,808 (573,609)
- -------------------------------------------------------------- ------------ ------------ --------------
Net investment income 41,388,791 25,597,558 573,609
- -------------------------------------------------------------- ------------ ------------ --------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (19,441,678) (25,911,557) --
- --------------------------------------------------------------
Net change in unrealized depreciation of investments and
translation of assets and liabilities in foreign currency (34,280,851) (18,665,120) --
- -------------------------------------------------------------- ------------ ------------ --------------
Net realized and unrealized loss on investments and
foreign currency (53,722,529) (44,576,677) --
- -------------------------------------------------------------- ------------ ------------ --------------
Change in net assets resulting from operations $(12,333,738) $(18,979,119) $ 573,609
- -------------------------------------------------------------- ------------ ------------ --------------
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------
Dividends (net of foreign taxes withheld of $552,152) $ 82,988,432
- --------------------------------------------------------------
Interest 3,475,694
- -------------------------------------------------------------- ------------
Total income 86,464,126
- --------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------
Investment advisory fee 12,708,361
- --------------------------------------------------------------
Administrative personnel and services fee 1,281,849
- --------------------------------------------------------------
Custodian fees 248,500
- --------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 2,156,653
- --------------------------------------------------------------
Directors'/Trustees' fees 21,000
- --------------------------------------------------------------
Auditing fees 20,913
- --------------------------------------------------------------
Legal fees 60,000
- --------------------------------------------------------------
Portfolio accounting fees 88,500
- --------------------------------------------------------------
Distribution services fee--Class B Shares 21,567
- --------------------------------------------------------------
Distribution services fee--Class C Shares 453,766
- --------------------------------------------------------------
Shareholder services fee--Class A Shares 1,900,244
- --------------------------------------------------------------
Shareholder services fee--Class B Shares 7,189
- --------------------------------------------------------------
Shareholder services fee--Class C Shares 151,255
- --------------------------------------------------------------
Shareholder services fee--Class F Shares 1,814,932
- --------------------------------------------------------------
Share registration costs 170,608
- --------------------------------------------------------------
Printing and postage 290,000
- --------------------------------------------------------------
Insurance premiums 22,000
- --------------------------------------------------------------
Taxes 257,000
- --------------------------------------------------------------
Miscellaneous 12,000
- -------------------------------------------------------------- ------------
Total expenses 21,686,337
- -------------------------------------------------------------- ------------
Waivers--Waiver of investment advisory fee (2,782,169)
- -------------------------------------------------------------- ------------
Net expenses 18,904,168
- -------------------------------------------------------------- ------------
Net investment income 67,559,958
- -------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
- --------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (45,353,235)
- --------------------------------------------------------------
Net change in unrealized depreciation of investments and
translation of assets and liabilities in foreign currency (52,945,971)
- -------------------------------------------------------------- ------------
Net realized and unrealized loss on investments and
foreign currency (98,299,206)
- -------------------------------------------------------------- ------------
Change in net assets resulting from operations $(30,739,248)
- -------------------------------------------------------------- ------------
</TABLE>
(See legend to the Statement of Operations)
(See Notes to Pro Forma Financial Statements)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
PRO FORMA COMBINING STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED FEBRUARY 28, 1995 AND SIX MONTHS ENDED AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(a) Federated Services Company maintains the Fund accounting records for wich
it receives a fee. The fee is based on the level of Fund's average daily
net assets, for the period plus out-of-pocket expense.
(b) State Street Bank and Trust Company is custodian for the securities and
cash of the Fund. The custodian fee is based on a percentage of assets,
plus out-of-pocket expenses.
(c) Printing and postage expenses are adjusted to reflect estimated savings to
be realized by combining two portfolios into a single portfolio.
(d) Legal expenses are adjusted to reflect estimated savings to be realized by
combining two portfolios into a single portfolio.
(e) Director expenses are adjusted to reflect estimated savings to be realized
by combining two portfolios into a single portfolio.
(f) Adjustment to reflect audit charge for one portfolio only.
(g) Other expenses are adjusted to reflect estimated savings to be realized by
combining two portfolios into a single portfolio.
(h) Passport Research, Ltd. is entitled to receive for its services an annual
investment advisory fee equal to 0.75% of the fund's average daily net
assets. The advisor may voluntarily chose to waive a portion of its fee.
The advisor can modify or terminate this voluntary waiver at any time at
its sole discretion.
Passport Research, Ltd. and Federated Management are responsible for the
payment of all expenses of the Reorganization incurred by either party,
whether or not the Reorganization is consummated. Such expenses include,
but are not limited to, accountants' fees, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the
costs of preparing, printing, copying and mailing proxy solicitation
materials to the Fortress Fund's shareholders and the costs of holding the
Meeting.
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
FORTRESS UTILITY FUND, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) BASIS OF COMBINATION
The unaudited Pro Forma Combining Portfolio of Investments, Statement of Assets
and Liabilities and Statement of Operations ("Pro Forma Financial Statements")
reflect the accounts of Federated Utility Fund, Inc. and Fortress Utility Fund,
Inc. (collectively, the "Funds") for the six months ended August 31, 1995. The
unaudited Pro Forma Combining Statement of Operations for the year ended
February 28, 1995 also reflect the accounts of the Funds. These statements have
been derived from the books and records utilized in calculating daily net asset
values at February 28, 1995 and for the six months ended August 31, 1995.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction with the
historical financial statements of the Funds incorporated by reference in the
Statement of Additional Information. The Funds follow generally accepted
accounting principles applicable to management investment companies which are
disclosed in the historical financial statements of each Fund.
The Pro Forma Financial Statements give effect to the proposed transfer of the
assets of Fortress Utility Fund, Inc. in exchange for Class F Shares of
Federated Utility Fund, Inc. Under generally accepted accounting principles,
Federated Utility Fund, Inc. will be the surviving entity for accounting
purposes with its historical cost of investment securities and results of
operations being carried forward.
The Pro Forma Financial Statements have been adjusted to reflect the anticipated
advisory and administration fee arrangements for the surviving entity. Certain
other operating costs have also been adjusted to reflect anticipated expenses of
the combined entity. Other costs which may change as a result of the
reorganization are currently undeterminable.
For the fiscal year ended February 28, 1995, and August 31, 1995, the Federated
Utility Fund, Inc. and Fortress Utility Fund, Inc. paid investment advisory fees
computed at the annual rate of .75% of the Fund's average net assets for
Federated Utility Fund, Inc. and Fortress Utility Fund, Inc.
The advisor and administrator may voluntarily choose to waive a portion of their
fees and reimburse certain operating expenses of Federated Utility Fund, Inc.
and Fortress Utility Fund, Inc.
(2) SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 64,666,774
shares of the Federated Utility Fund, Inc.'s Class F Shares in exchange for
58,678,360 shares from the Fortress Utility Fund, Inc. which would have been
issued at August 31, 1995, in connection with the proposed reorganization.
Cusip 349561100
G01365-02 (4/96)
FORTRESS UTILITY FUND, INC.
SPECIAL MEETING OF SHAREHOLDERS MAY 31, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Fortress Utility Fund, Inc. hereby appoint Patricia Conner, Charles
Field, Patricia Godlewski, Stephen Newcamp, and Scott Tretter or any of
them, true and lawful attorneys, with the power of substitution
each, to vote all shares of Fortress Utility Fund, Inc. which the
undersigned is entitled to vote, at the Special Meeting of Shareholders to
be held on May 31, 1996, at Federated Investors Tower, Pittsburgh,
Pennsylvania, at 2:00 p.m. (Eastern Time), and at any adjournment
thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The attorneys
named will vote the shares represented by this proxy in
accordance with the choices made on this ballot. IF NO CHOICE IS INDICATED AS
TO ANY ITEM, THIS PROXY WILL BE VOTED AFFIRMATIVELY ON THIS
MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
FORTRESS UTILITY FUND, INC.KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN 1. TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION PROVIDING FOR THE TRANSFER
OF THE ASSETS OF THE FORTRESS UTILITY FUND,
- --- --- --- TO THE CLASS F SHARES OF FEDERATED UTILITY FUND, INC.
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc.
please give full title as such. If a corporation or partnership, please sign
the full name by an authorized officer or partner. If stock is
owned jointly, all parties should sign.
