1933 Act File No. 33-13388
1940 Act File No. 811-5114
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ..........
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Post-Effective Amendment No. 17 .......... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 20 ......................... X
FEDERATED UTILITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on pursuant to paragraph (b)
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X 60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
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Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on April 15, 1996; or
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intends to file the Notice required by that Rule on or about; or
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during the most recent fiscal year did not sell any securities
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pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of FEDERATED UTILITY FUND,
INC., consisting of four classes of shares: (1) Class A Shares; (2) Class B
Shares; (3) Class C Shares; and (4) Class F Shares is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-4) Cover Page.
Item 2. Synopsis.................(1-4) General Information; (1-4) Summary
of Fund Expenses.
Item 3. Condensed Financial
Information............(1-4) Financial Highlights
Item 4. General Description of
Registrant.............(1-4) Performance Information; (1-4)
General Information; (1-4) Investment
Information; (1-4) Investment Objective;
(1-4) Investment Policies; (1-4)
Investment Risks; (1-4) Investment
Limitations; (1-4) Performance
Information.
Item 5. Management of the Fund...(1-4) Fund Information; (1-4) Management
of the Fund; (4) Distribution of Class F
Shares; (1-4) Administration of the
Fund;
Item 6. Capital Stock and Other
Securities.............(1-4) Shareholder Information; (1-4)
Voting Rights; (1-4) Tax Information;
(1-4) Federal Income Tax; (1-4)
Pennsylvania Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered................(1-4) Net Asset Value; (1-3) Investing
in Shares; (4) Investing in Class F
Shares; (1-4) Exchange Privileges.
Item 8. Redemption or Repurchase.(1-3) Redeeming Shares; (4) Redeeming
Class F Shares; (1-4) Through a
Financial Institution; (1-4) Redeeming
Shares By Telephone; (1-4) Redeeming
Shares By Mail; (1-4) Contingent
Deferred Sales Charge; (1-3) Elimination
of the Contingent Deferred Sales Charge;
(1-3) Systematic Withdrawal Program; (1-
4) Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-4) Cover Page.
Item 11. Table of Contents........(1-4) Table of Contents.
Item 12. General Information and
History................(1-4) General Information About the
Fund.
Item 13. Investment Objectives and
Policies...............(1-4) Investment Objectives and
Policies; (1-4) Investment Limitations.
Item 14. Management of the Fund...(1-4) Federated Utility Fund, Inc.
Management; (1-4) Directors'
Compensation.
Item 15. Control Persons and Principal
Holders of Securities..(1-4) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-4) Investment Advisory Services; (1-
4) Other Services.
Item 17. Brokerage Allocation.....(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities.............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered..........(1-4) Purchasing Shares; (1-4)
Determining Net Asset Value; (1-4)
Redeeming Shares; (1-4) Elimination of
the Contingent Deferred Sales Charge.
Item 20. Tax Status...............(1-4) Tax Status.
Item 21. Underwriters.............(1-4) Distribution Plan and Shareholder
Services Agreement.
Item 22. Calculation of Performance
Data...................(1-4) Total Return; (1-4) Yield; (1-4)
Performance Comparisons.
Item 23. Financial Statements.....(1-4) Incorporated by reference to
Annual Report of Registrant dated
February 29, 1996 (File Nos. 33-13388
and 811-5114).
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
The shares of Federated Utility Fund, Inc. (the "Fund") offered by this
prospectus represent interests in the Fund which is an open-end,
diversified management investment company (a mutual fund).
The Fund invests in a diversified portfolio comprised primarily of equity
securities to achieve current income and long-term growth of income.
Capital appreciation is a secondary objective.
The shares offered by this prospectus are not deposits or obligations of
any bank, are not endorsed or guaranteed by any bank, and are not insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in these shares involves investment
risk including the possible loss of principal.
This prospectus contains the information you should read and know before
you invest in Class A Shares Class B Shares, and Class C Shares of the
Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated April ,
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1997, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information, or a paper copy of this prospectus, if you have
received it electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated April , 1997
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TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
FINANCIAL HIGHLIGHTS-CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. From the date of the Fund's initial public offering in 1987 until
May 27, 1988, the Fund was operated as a closed-end investment company. On
May 16, 1988, the shareholders of the Fund approved the conversion of the
Fund from a closed-end investment company to an open-end investment
company. Shareholders of the Fund, at a meeting held January 18, 1990,
approved the Fund's name change from Progressive Income Equity Fund, Inc.
to Liberty Utility Fund, Inc. At a meeting of the Board of Directors held
on February 26, 1996, the Directors approved an amendment to the Articles
of Incorporation to change the name of Liberty Utility Fund, Inc. to
Federated Utility Fund, Inc. The Articles of Incorporation permit the Fund
to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to the Fund, as of the date of this
prospectus, the Board of Directors has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares, and Class F Shares
(individually and collectively as the context requires, "Shares"). This
prospectus relates only to the Class A Shares, Class B Shares, and Class C
Shares of the Fund.
Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. The minimum
initial investment for Class A Shares is $500. The minimum initial
investment for Class B Shares and Class C Shares is $1500. However, the
minimum initial investment for a retirement account in any class is $50.
Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.
The Fund's current net asset value and offering price may be found in the
mutual funds section of local newspapers under `Federated'' and the
appropriate class designation listing.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES
The primary investment objectives of the Fund is current income and long-
term growth of income. Capital appreciation is a secondary objective. While
there is no assurance that the Fund will achieve its investment objectives,
it endeavors to do so by following the policies described in this
prospectus. The investment objectives cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will seek to achieve its investment
objectives by investing primarily in common stocks, preferred stocks, units
of participation in master limited partnerships which are traded on
national securities exchanges, securities convertible into stock, and debt
securities issued by companies in the utilities industry. Under normal
conditions, with respect to 65% of its assets, the Fund will invest in
utility companies that derive 50% of their revenues from utilities or
assets relating to utility industries. Securities issued by companies in
the utilities industry include companies engaged in the production,
transmission or distribution of electric energy or gas, or in
communications facilities such as telephone or telegraph services.
Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. ("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, or (iii) the subordinated debt of issuers whose senior
debt obligations are deemed to be investment grade by either of the
aforementioned rating services. These subordinated debt securities may be
unrated or rated below investment grade by Moody's or S&P. Securities rated
in the lowest category of investment grade have speculative
characteristics. Changes in economic or other circumstances are more likely
to lead to weakened capacity to make principal and interest payments than
higher rated bonds. The prices of fixed income securities fluctuate
inversely to the direction of interest rates.
For temporary or defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its
agencies or instrumentalities, commercial paper rated not lower than A-1 by
S&P or Prime-1 by Moody's or repurchase agreements.
The investment policies described above cannot be changed without
shareholder approval.
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. The
Directors apply this limitation to debt convertible securities.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the
Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income,
the Fund may lend its portfolio securities, on a short-term or long-term
basis, to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will limit the amount of portfolio securities it may
lend to not more than one-third of its total assets. The Fund will only
enter into loan arrangements with broker/dealers, banks, or other
institutions which the adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in cash
or United States government securities that will be maintained in an amount
equal to at least 100% of the current market value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its
total assets in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its
investment objectives and policies but which are subject to restriction on
resale under federal securities law. To the extent these securities are
deemed to be illiquid, the Fund will limit its purchases together with
other securities considered to be illiquid to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices. Accordingly, the Fund may pay more or
less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
COVERED CALL OPTIONS. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. Call options
written by the Fund give the holder the right to buy the underlying
securities of the Fund at the stated exercise price. The Fund will write
call options only on securities either held in its portfolio, or for which
it has the right to obtain without payment of further consideration, or for
which it has segregated cash in the amount of any additional consideration.
The call options which the Fund writes and sells must be listed on a
recognized options exchange. The Fund's investment in call options shall
not exceed 5% of the Fund's total assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may purchase American Depository
Receipts ("ADRs") issued by U.S. Banks as a substitute for direct ownership
of securities of foreign companies in the utilities industry. ADRs are
traded in the United States on stock exchanges and in the over-the-counter
markets like stocks of domestic companies.
INVESTMENT RISKS
The Fund will attempt to meet its investment objectives by being at least
65% invested in securities issued by companies in the domestic and foreign
utilities industries. There are certain risks associated with the utilities
industries and with foreign securities of which investors in the Fund
should be aware.
CONSIDERATIONS OF UTILITY SECURITIES. There are certain risks and
considerations affecting utility companies, and the holders of utility
company securities, which an investor should take into account when
investing in those securities. Factors which may adversely affect utility
companies include: difficulty in financing large construction programs
during inflationary periods; technological innovations which may cause
existing plants, equipment, or products to become less competitive or
obsolete; the impact of natural or man-made disasters (especially on
regional utilities); increased costs or reductions in production due to the
unavailability of appropriate types of fuel; seasonally or occasionally
reduced availability or higher cost of natural gas; and reduced demand due
to energy conservation among consumers. The revenues of domestic and
foreign utility companies generally reflect the economic growth and
developments in the geographic areas in which they do business.
Furthermore, utility securities tend to be interest rate sensitive.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of
such regulation is to ensure desirable levels of service and adequate
capacity to meet public demand. To this end, prices are often regulated to
enable consumers to obtain service at what is perceived to be a fair price,
while attempting to provide utility companies with a rate of return
sufficient to attract capital investment necessary for continued operation
and necessary growth. Recently, utility regulators have permitted utilities
to diversify outside of their original geographic regions and their
traditional lines of business. While the adviser believes that these
opportunities will permit certain utility companies to earn more than their
traditional regulated rates of return, other companies may be forced to
defend their core business and may be less profitable. Of course, there can
be no assurance that all of the regulatory policies described in this
paragraph will continue in the future.
In addition to the effects of regulation described in the previous
paragraph, utility companies may also be adversely affected by the
following regulatory considerations: the development and implementation of
a national energy policy; the differences between regulatory policies of
different jurisdictions (or different regulators which have concurrent
jurisdiction); shifts in regulatory policies; adequacy of rate increases;
and future regulatory legislation.
Foreign utility companies may encounter different risks and opportunities
than those located in the United States. Foreign utility companies may be
more heavily regulated than their United States counterparts. Many foreign
utility companies currently use fuels which cause more pollution than fuels
used by United States utilities; in the future, it may be necessary for
such foreign utility companies to invest heavily in pollution control
equipment or otherwise meet pollution restrictions. Rapid growth in certain
foreign economies may encourage the growth of utility industries in those
countries. Although many foreign utility companies are currently
government-owned, the adviser believes that it is likely that some foreign
governments will seek to "privatize" their utility companies, i.e.,
transfer ownership to private investors.
In addition to the foregoing considerations which affect most utility
companies, there are specific considerations which affect specific utility
industries:
ELECTRIC. The electric utility industry is made up of companies that are
engaged in the generation, transmission, and sale of electric energy.
Domestic electric utility companies have generally been favorably affected
by lower fuel and financing costs and the completion of major construction
programs. Some electric utilities are able to sell power outside of their
traditional geographic areas. Electric utility companies have historically
been subject to increases in fuel and other operating costs, high interest
costs on borrowings needed for capital construction programs, compliance
with environmental and safety regulations, and changes in the regulatory
climate.
In the United States, the construction and operation of nuclear power
facilities is subject to a high degree of regulatory oversight by the
Nuclear Regulatory Commission and state agencies with concurrent
jurisdiction. In addition, the design, construction, licensing, and
operation of nuclear power facilities are often subject to lengthy delays
and unanticipated costs due to changes in regulatory policy, regional
political actions, and lawsuits. Furthermore, during rate authorizations,
utility regulators may disallow the inclusion in electric rates of the
higher operating costs and expenditures resulting from these delays and
unanticipated costs, including the costs of a nuclear facility which a
utility company may never be able to use.
TELECOMMUNICATIONS. The telephone industry is large and highly
concentrated. The greatest portion of this segment is comprised of
companies which distribute telephone services and provide access to the
telephone networks. While many telephone utility companies have diversified
into other businesses in recent years, the profitability of telephone
utility companies could be adversely affected by increasing competition,
technological innovations, and other structural changes in the industry.
Cable television companies are typically local monopolies, subject to
scrutiny by both utility regulators and municipal governments. Emerging
technologies and legislation encouraging local competition are combining to
threaten these monopolies and may slow future growth rates of these
companies. The radio telecommunications segment of this industry, including
cellular telephone, is in its early developmental phases and is
characterized by emerging, rapidly growing companies.
GAS. Gas transmission and distribution companies are undergoing
significant changes. In the United States, the Federal Energy Regulatory
Commission is reducing its regulation of interstate transmission of gas.
While gas utility companies have in the recent past been adversely affected
by disruptions in the oil industry, increased concentration, and increased
competition, the adviser believes that environmental considerations should
benefit the gas industry in the future.
WATER. Water utility companies purify, distribute, and sell water. This
industry is highly fragmented because most of the water supplies are owned
by local authorities. Water utility companies are generally mature and are
experiencing little or no per capita volume growth. The adviser believes
that favorable investment opportunities may result if anticipated
consolidation and foreign participation in this industry occurs.
REDUCING RISKS OF UTILITY SECURITIES. The adviser believes that the risks
of investing in utility securities can be reduced. The professional
portfolio management techniques used by the Fund to attempt to reduce these
risk include credit research and diversification techniques. The adviser
will perform its own credit analysis in addition to using recognized rating
agencies and other sources, including discussions with the issuer's
management, the judgment of other investment analysts, and its own informed
judgment. The adviser's credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow, interest or dividend
coverage, and earnings. In evaluating an issuer, the adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical costs.
SECURITIES OF FOREIGN ISSUERS. Investing in non-U.S. securities carries
substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries.
The Fund will take advantage of the unusual opportunities for higher
returns available from investing in developing countries and may invest up
to 10% of its total assets in the utility securities of such countries.
These investments carry considerably more volatility and risk because they
are associated with less mature economies and less stable political
systems.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations.
Although the Fund values its assets daily in U.S. dollars, it will not
convert its holding of foreign currencies to U.S. dollars daily.
When the Fund converts its holdings to another currency, it may incur
conversion costs. Foreign exchange dealers realize a profit on the
difference between the prices at which they buy and sell securities.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
oless publicly available information about foreign companies;
othe lack of uniform financial accounting standards applicable to
foreign companies;
oless readily available market quotations on foreign companies;
odifferences in government regulation and supervision of foreign
stock exchanges, brokers, listed companies, and banks;
ogenerally lower foreign stock market value;
othe likelihood that foreign securities may be less liquid or more
volatile;
oforeign brokerage commissions may be higher;
ounreliable mail service between countries; and
opolitical or financial changes which adversely affect investments in
some countries.
RISK CONSIDERATIONS IN DEVELOPING COUNTRIES. Securities prices in
developing countries can be significantly more volatile than in developed
countries, reflecting the greater uncertainties of investing in lesser
developed markets and economies. In particular, developing countries may
have relatively unstable governments, and may present the risk of
nationalization of businesses, expropriation, confiscatory taxation or, in
certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or
prohibitions on the repatriation of assets, and may have less protection of
property rights than developed countries.
The economies of developing countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme
and volatile debt burdens or inflation rates. In addition, securities
markets in developing countries may trade a small number of securities and
may be unable to respond effectively to increase in trading volume,
potentially resulting in a lack of liquidity and in volatility in the price
of securities traded on those markets. Also, securities markets in
developing countries typically offer less regulatory protection for
investors.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Although the Fund is unaware of any current restrictions,
investors are advised that these policies could be reinstituted.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:
oinvest more than 25% of its total assets (valued at time of
investment) in securities of companies engaged principally in any
one industry other than the utilities industry, except that this
restriction does not apply to cash or cash items and securities
issued or guaranteed by the United States government or its
agencies or instrumentalities;
oinvest more than 5% of the value of its total assets in securities
of companies, including their predecessors, which have been in
operation for less than three years;
oinvest more than 5% of its total assets (valued at the time of
investment) in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase
agreements, and securities issued or guaranteed by the United
States government or its agencies or instrumentalities;
oacquire more than 10% of the outstanding voting securities of any
one issuer (at the time of acquisition);
oborrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the
value of its net assets, including the amounts borrowed, and pledge
up to 10% of the value of those assets to secure such borrowings.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
any such borrowings are outstanding. However, during the period any
reverse repurchase agreements are outstanding, but only to the
extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements;
olend any of its assets except portfolio securities up to one-third
of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by
the Fund's investment objectives and policies;
owrite call options on securities unless the securities are held in
the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash
in the amount of any further payment. The Fund's investment in put
or call options, straddles, spreads, or any combination thereof
shall not exceed 5% of the Fund's total assets;
oinvest more than 5% of its net assets in warrants, not more than 2%
of which can be warrants not listed on recognized exchanges; or
oinvest more than 15% of total assets in securities of foreign
issuers not listed on recognized exchanges.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes
in value or in the number of outstanding securities of an issuer will not
be considered a violation.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of each class of Shares in the
market value of all securities and other assets of the Fund, subtracting
the interest of each class of Shares in the liabilities of the Fund and
those attributable to each class of Shares, and dividing the remainder by
the total number of each class of Shares outstanding. The net asset value
for each class of Shares may differ due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income
to which the shareholders of a particular class are entitled.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
INVESTING IN THE FUND
The Fund offers investors three classes of Shares that carry sales charges
and contingent deferred sales charges in different forms and amounts and
which bear different levels of expenses.
CLASS A SHARES. An investor who purchases Class A Shares pays a maximum
sales charge of 5.50% at the time of purchase. As a result, Class A Shares
are not subject to any charges when they are redeemed (except for special
programs offered under "Purchases with Proceeds From Redemptions of
Unaffiliated Investment Companies.") Certain purchases of Class A Shares
qualify for reduced sales charges. See "Reducing or Eliminating the Sales
Charge." Class A Shares have no conversion feature.
CLASS B SHARES. Class B Shares are sold without an initial sales charge,
but are subject to a contingent deferred sales charge of up to 5.50% if
redeemed within six full years following purchase. Class B Shares also bear
a higher 12b-1 fee than Class A Shares. Class B Shares will automatically
convert into Class A Shares, based on relative net asset value, on or
around the fifteenth of the month eight full years after the purchase date.
Class B Shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made, but (until
conversion) will have a higher expense ratio and pay lower dividends than
Class A Shares due to the higher 12b-1 fee.
CLASS C SHARES. Class C Shares are sold without an initial sales charge,
but are subject to a 1.00% contingent deferred sales charge on assets
redeemed within the first 12 months following purchase. Class C Shares
provide an investor the benefit of putting all of the investor's dollars to
work from the time the investment is made, but will have a higher expense
ratio and pay lower dividends than Class A Shares due to their higher 12b-1
fee. Class C Shares have no conversion feature.
HOW TO PURCHASE SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open for business. Shares of the Fund may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer
which has a sales agreement with the distributor) or by wire or by check
directly to the Fund, with a minimum initial investment of $500 for Class A
Shares and $1,500 for Class B Shares and Class C Shares. Additional
investments can be made for as little as $100. The minimum initial and
subsequent investment for retirement plans is only $50. (Financial
institutions may impose different minimum investment requirements on their
customers.)
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased.
INVESTING IN CLASS A SHARES
Class A Shares are sold at their net asset value next determined after an
order is received, plus a sales charge as follows:
Sales Charge Dealer
Sales Charge as a Concession
as a Percentage as a
Percentage of Net Percentage
Amount of of Public Amount of Public
Transaction Offering Price Invested Offering Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.50% 2.56% 2.25%
$500,000 but less than $1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
*See sub-section entitled "Dealer Concession."
No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge.
However, investors who purchase Class A Shares through a trust department,
investment adviser, or other financial intermediary may be charged a
service or other fee by the financial intermediary. Additionally, no sales
charge is imposed on shareholders designated as Liberty Life Members or on
Class A Shares purchased through `wrap accounts'' or similar programs
under which clients pay a fee for services.
DEALER CONCESSION. For sales of Class A Shares, a dealer will normally
receive up to 90% of the applicable sales charge. Any portion of the sales
charge which is not paid to a dealer will be retained by the distributor.
However, the distributor, may offer to pay dealers up to 100% of the sales
charge retained by it. Such payments may take the form of cash or
promotional incentives, such as reimbursement of certain expenses of
qualified employees and their spouses to attend informational meetings
about the Fund or other special events at recreational-type facilities, or
items of material value. In some instances, these incentives will be made
available only to dealers whose employees have sold or may sell a
significant amount of Shares. On purchases of $1 million or more, the
investor pays no sales charge; however, the distributor will make twelve
monthly payments to the dealer totaling 0.25% of the public offering price
over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.
The sales charge for Shares sold other than through registered
broker/dealers will be retained by Federated Securities Corp. Federated
Securities Corp. may pay fees to banks out of the sales charge in exchange
for sales and/or administrative services performed on behalf of the bank's
customers in connection with the initiation of customer accounts and
purchases of Shares.
REDUCING OR ELIMINATING THE SALES CHARGE
The sales charge can be reduced or eliminated on the purchase of Class A
Shares through:
oquantity discounts and accumulated purchases;
oconcurrent purchases;
osigning a 13-month letter of intent;
ousing the reinvestment privilege; or
opurchases with proceeds from redemptions of unaffiliated investment
company shares.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine
purchases of Class A Shares made on the same day by the investor, the
investor's spouse, and the investor's children under age 21 when it
calculates the sales charge. In addition, the sales charge, if applicable,
is reduced for purchases made at one time by a trustee or fiduciary for a
single trust estate or a single fiduciary account.
If an additional purchase of Class A Shares is made, the Fund will consider
the previous purchases still invested in the Fund. For example, if a
shareholder already owns Class A Shares having a current value at the
public offering price of $90,000 and he purchases $10,000 more at the
current public offering price, the sales charge on the additional purchase
according to the schedule now in effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the purchase is made that Class A Shares are already owned or that
purchases are being combined. The Fund will reduce the sales charge after
it confirms the purchases.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent
purchases of two or more Class A Shares of certain other funds for which
Federated Investors serve as investment advisers or principal underwriter
(the `Federated Funds''), the purchase price of which includes a sales
charge. For example, if a shareholder concurrently invested $30,000 in one
of the other Class A Shares in the Federated Funds with a sales charge, and
$20,000 in this Fund, the sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at
the time the concurrent purchases are made. The Fund will reduce the sales
charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $50,000 of
shares of Federated Funds (excluding money market funds) over the next 13
months, the sales charge may be reduced by signing a letter of intent to
that effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the 13-month
period and a provision for the custodian to hold up to 5.50% of the total
amount intended to be purchased in escrow (in shares) until such purchase
is completed.
The Shares held in escrow in the shareholder's account will be released
upon the fulfillment of the letter of intent or the end of the 13-month
period, whichever comes first. If the amount specified in the letter of
intent is not purchased, an appropriate number of escrowed Shares may be
redeemed in order to realize the difference in the sales charge.
While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. At the time a
letter of intent is established, current balances in accounts in any Class
A Shares of any Federated Funds, excluding money market accounts, will be
aggregated to provide a purchase credit towards fulfillment of the letter
of intent. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE. If Class A Shares in the Fund have been redeemed,
the shareholder has the privilege within 120 days, to reinvest the
redemption proceeds at the next-determined net asset value without any
sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment
in order to eliminate a sales charge. If the shareholder redeems his Class
A Shares in the Fund, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT
COMPANIES. Investors may purchase Class A Shares at net asset value,
without a sales charge, with the proceeds from the redemption of shares of
an unaffiliated investment company that were purchased or sold with a sales
charge or commission and were not distributed by Federated Securities Corp.
The purchase must be made within 60 days of the redemption, and Federated
Securities Corp. must be notified by the investor in writing, or by his
financial institution, at the time the purchase is made. From time to time,
the Fund may offer dealers a payment of .50 of 1.00% for Shares purchased
under this program. If Shares are purchased in this manner, Fund purchases
will be subject to a contingent deferred sales charge for one year from the
date of purchase. Shareholders will be notified prior to the implementation
of any special offering as described above.
INVESTING IN CLASS B SHARES. Class B Shares are sold at their net asset
value next determined after an order is received. While Class B Shares are
sold without an initial sales charge, under certain circumstances described
under "Contingent Deferred Sales Charge--Class B Shares," a contingent
deferred sales charge may be applied by the distributor at the time Class B
Shares are redeemed.
CONVERSION OF CLASS B SHARES. Class B Shares will automatically convert
into Class A Shares on or around the fifteenth of the month eight full
years after the purchase date, except as noted below, and will no longer be
subject to a distribution services fee (see "Distribution of Shares"). Such
conversion will be on the basis of the relative net asset values per share,
without the imposition of any sales charge, fee or other charge. Class B
Shares acquired by exchange from Class B Shares of another Federated Fund
will convert into Class A Shares based on the time of the initial purchase.
For purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B
Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares
in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability
of a ruling from the Internal Revenue Service or an opinion of counsel that
such conversions will not constitute taxable events for federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B Shares to Class A Shares will not
occur if such ruling or opinion is not available. In such event, Class B
Shares would continue to be subject to higher expenses than Class A Shares
for an indefinite period.
Orders for $250,000 or more of Class B Shares will automatically be
invested in Class A Shares.
INVESTING IN CLASS C SHARES. Class C Shares are sold at net asset value
next determined after an order is received. A contingent deferred sales
charge of 1.00% will be charged on assets redeemed within the first full 12
months following purchase. For a complete description of this charge see
"Contingent Deferred Sales Charge--Class C Shares."
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION. An investor may call
his financial institution (such as a bank or an investment dealer) to place
an order to purchase Shares. Orders placed through a financial institution
are considered received when the Fund is notified of the purchase order or
when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before
5:00 p.m. (Eastern time) in order for Shares to be purchased at that day's
price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before
4:00 p.m. (Eastern time) in order for Shares to be purchased at that day's
price. It is the financial institution's responsibility to transmit orders
promptly. Financial institutions may charge additional fees for their
services.
The financial institution which maintains investor accounts in Class B
Shares or Class C Shares with the Fund must do so on a fully disclosed
basis unless it accounts for share ownership periods used in calculating
the contingent deferred sales charge (see "Contingent Deferred Sales
Charge"). In addition, advance payments made to financial institutions may
be subject to reclaim by the distributor for accounts transferred to
financial institutions which do not maintain investor accounts on a fully
disclosed basis and do not account for share ownership periods.
PURCHASING SHARES BY WIRE. Once an account has been established, Shares
may be purchased by Federal Reserve wire by calling the Fund. All
information needed will be taken over the telephone, and the order is
considered received when State Street Bank receives payment by wire.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, MA; Attention:
EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number); Account
Number; Trade Date and Order Number; Group Number or Dealer Number; Nominee
or Institution Name; and ABA Number 011000028. Shares cannot be purchased
by wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Once an account has been established, Shares
may be purchased by sending a check made payable to the name of the Fund
(designate class of Shares and account number) to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received).
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM. Once a Fund account has been opened,
shareholders may add to their investment on a regular basis in a minimum
amount of $100. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund at the net asset
value next determined after an order is received by the Fund, plus the
sales charge, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.
RETIREMENT PLANS. Fund Shares can be purchased as an investment for
retirement plans or IRA accounts. For further details, contact the Fund and
consult a tax adviser.
EXCHANGE PRIVILEGE
CLASS A SHARES. Class A shareholders may exchange all or some of their
Shares for Class A Shares of other Federated Funds as listed herein at net
asset value. Neither the Fund nor any of the Federated Funds imposes any
additional fees on exchanges. Shareholders in certain other Federated Funds
may exchange all or some of their Shares for Class A Shares.
CLASS B SHARES. Class B shareholders may exchange all or some of their
Shares for Class B Shares of other Federated Funds. (Not all Federated
Funds currently offer Class B Shares. Contact your financial institution
regarding the availability of other Class B Shares in the Federated Funds).
Exchanges are made at net asset value without being assessed a contingent
deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other Federated Funds,
the time for which the exchanged-for Shares are to be held will be added to
the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.
CLASS C SHARES. Class C shareholders may exchange all or some of their
Shares for Class C Shares in other Federated Funds at net asset value
without a contingent deferred sales charge. (Not all Federated Funds
currently offer Class C Shares. Contact your financial institution
regarding the availability of other Class C Shares in the Federated Funds.)
To the extent that a shareholder exchanges Shares for Class C Shares in
other Federated Funds, the time for which the exchanged-for Shares are to
be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the applicable holding period. For more
information, see "Contingent Deferred Sales Charge."
The Fund has exchange privileges with the following Federated Funds:
Federated American Leaders Find, Inc.; Capital Growth Fund (Class A Shares
and Class C Shares only); Federated Asia Pacific Growth Fund; Federated
Bond Fund; Federated Emerging Markets Fund; Federated European Growth Fund;
Federated International Equity Fund; Federated International Income Fund;
Federated International Small Company Fund; Federated Latin American Growth
Fund; Federated Limited Term Fund (Class A Shares only); Federated Limited
Term Municipal Fund (Class A Shares only); Federated Small Cap Strategies
Fund; Federated Strategic Income Fund; Federated World Utility Fund;
Federated Fund For U.S. Government Securities, Inc.; Federated Equity
Income Fund, Inc.; Federated High Income Bond Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Federated Michigan Intermediate Municipal Trust (Class A Shares
only); Federated Pennsylvania Municipal Income Fund (Class A Shares only);
and Tax-Free Instruments Trust .
Prospectuses for these funds are available by writing to Federated
Securities Corp.
Shareholders of Class A Shares who have been designated as Liberty Life
Members are exempt from sales charges on future purchases in and exchanges
between the Class A Shares of any Federated Funds, as long as they maintain
a $500 balance in one of the Federated Funds.
REQUIREMENTS FOR EXCHANGE. Shareholders using this privilege must exchange
Shares having a net asset value equal to the minimum investment
requirements of the fund into which the exchange is being made. Before the
exchange, the shareholder must receive a prospectus of the fund for which
the exchange is being made.
This privilege is available to shareholders resident in any state in which
the Shares being acquired may be sold. Upon receipt of proper instructions
and required supporting documents, Shares submitted for exchange are
redeemed and proceeds invested in the same class of Shares of the other
fund. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the
exchange privilege.
TAX CONSEQUENCES. An exercise of the exchange privilege is treated as a
sale for federal income tax purposes. Depending upon the circumstances, a
capital gain or loss may be realized.
MAKING AN EXCHANGE. Instructions for exchanges for Federated Funds may be
given in writing or by telephone. Written instructions may require a
signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his broker or financial institution by telephone, it is recommended
that an exchange request be made in writing and sent by overnight mail to
Federated Shareholder Services Company, 500 Victory Road--2nd Floor,
Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the
investor is on file with the Fund. If the instructions are given by a
broker, a telephone authorization form completed by the broker must be on
file with the Fund. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions. Shares may be exchanged between two funds by telephone only
if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but
must be forwarded to Federated Shareholder Services Company, P.O. Box 8600,
Boston, Massachusetts 02266-8600 and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions are recorded and
will be binding upon the shareholder. Such instructions will be processed
as of 4:00 p.m. (Eastern time) and must be received by the Fund before that
time for Shares to be exchanged the same day. Shareholders exchanging into
a Fund will begin receiving dividends the following business day. This
privilege may be modified or terminated at any time.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION. Shares of the Fund may
be redeemed by calling your financial institution to request the
redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to
the Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed
at that day's net asset value. Redemption requests through other financial
institutions (such as banks) must be received by the financial institution
and transmitted to the Fund before 4:00 p.m. (Eastern time) in order for
Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions. Customary fees and
commissions may be charged by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE. Shares may be redeemed in any amount by
calling the Fund provided the Fund has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
will be mailed in the form of a check, to the shareholder's address of
record or by wire transfer to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. The minimum
amount for a wire transfer is $1,000. Proceeds from redeemed Shares
purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business
day. Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative
at the telephone number listed on your account statement.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing
a written request to: Federated Shareholder Services Company, Fund Name,
Fund Class, P.O. Box 8600, Boston, MA 02266-8600.
If share certificates have been issued, they should be sent unendorsed with
the written request by registered or certified mail to the address noted
above.
The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the
number of Shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the Shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, Trust company or savings association whose
deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Fund does not accept signatures
guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
SPECIAL REDEMPTION FEATURES
SYSTEMATIC WITHDRAWAL PROGRAM. Shareholders who desire to receive payments
of a predetermined amount not less than $100 may take advantage of the
Systematic Withdrawal Program. Under this program, Shares are redeemed to
provide for periodic withdrawal payments in an amount directed by the
shareholder.
Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and
the fluctuation of the net asset value of Shares redeemed under this
program, redemptions may reduce, and eventually deplete, the shareholder's
investment in the Fund. For this reason, payments under this program should
not be considered as yield or income on the shareholder's investment in
theFund. To be eligible to participate in this program, a shareholder must
have an account value of at least $10,000. A shareholder may apply for
participation in this program through his financial institution. Due to the
fact that Class A Shares are sold with a sales charge, it is not advisable
for shareholders to continue to purchase Class A Shares while participating
in this program. A contingent deferred sales charge may be imposed on Class
B Shares and Class C Shares.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES. Class A Shares purchased under a periodic special offering
with the proceeds of a redemption of Shares of an unaffiliated investment
company purchased or sold with a sales charge and not distributed by
Federated Securities Corp. may be charged a contingent deferred sales
charge of .50 of 1.00% for redemptions made within one full year of
purchase. Any applicable contingent deferred sales charge will be imposed
on the lesser of the net asset value of the redeemed Shares at the time of
purchase or the net asset value of the redeemed Shares at the time of
redemption.
CLASS B SHARES. Shareholders redeeming Class B Shares from their Fund
accounts within six full years of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's distributor. Any
applicable contingent deferred sales charge will be imposed on the lesser
of the net asset value of the redeemed Shares at the time of purchase or
the net asset value of the redeemed Shares at the time of redemption in
accordance with the following schedule:
Contingent
Year of Redemption Deferred
After Purchase Sales Charge
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C SHARES. Shareholders redeeming Class C Shares from their Fund
accounts within one full year of the purchase date of those Shares will be
charged a contingent deferred sales charge by the Fund's distributor of
1.00%. Any applicable contingent deferred sales charge will be imposed on
the lesser of the net asset value of the redeemed Shares at the time of
purchase or the net asset value of the redeemed Shares at the time of
redemption.
CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES. The contingent
deferred sales charge will be deducted from the redemption proceeds
otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to
a contingent deferred sales charge. In computing the amount of the
applicable contingent deferred sales charge, redemptions are deemed to have
occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for
more than six full years from the date of purchase with respect to Class B
Shares and one full year from the date of purchase with respect to Class C
Shares and applicable Class A Shares; (3) Shares held for fewer than six
years with respect to Class B Shares and one full year from the date of
purchase with respect to Class C Shares and applicable Class A Shares on a
first-in, first-out basis. A contingent deferred sales charge is not
assessed in connection with an exchange of Fund Shares for Shares of other
Federated Funds in the same class (see "Exchange Privilege"). Any
contingent deferred sales charge imposed at the time the exchanged for
Shares are redeemed is calculated as if the shareholder had held the Shares
from the date on which he became a shareholder of the exchanged-from
Shares. Moreover, the contingent deferred sales charge will be eliminated
with respect to certain redemptions (see "Elimination of Contingent
Deferred Sales Charge").
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability,
as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the
last surviving shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement
plan to a shareholder who has attained the age of 70-1/2; (3) involuntary
redemptions by the Fund of Shares in shareholder accounts that do not
comply with the minimum balance requirements; and (4) qualifying
redemptions of Class B Shares under a Systematic Withdrawal Program. To
qualify for elimination of the contingent deferred sales charge through a
Systematic Withdrawal Program, the redemptions of Class B Shares must be
from an account: that is at least 12 months old, has all Fund distributions
reinvested in the Fund Shares, and has a value of at least $10,000 when the
Systematic Withdrawal Program is established. Qualifying redemptions may
not exceed 1.00% monthly of the account value as periodically determined by
the Fund. For more information regarding the elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, contact your
financial intermediary or the Fund. No contingent deferred sales charge
will be imposed on redemptions of Shares held by Directors, employees and
sales representatives of the Fund, the distributor, or affiliates of the
Fund or distributor, and their immediate family members; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of
21 of the aforementioned persons. Finally, no contingent deferred sales
charge will be imposed on the redemption of Shares originally purchased
through a bank trust department, an investment adviser registered under the
Investment Advisers Act of 1940, or retirement plans where the third party
administrator has entered into certain arrangements with Federated
Securities Corp. or its affiliates, or any other financial institution, to
the extent that no payments were advanced for purchases made through such
entities. The Directors reserve the right to discontinue or modify the
elimination of the contingent deferred sales charge. Shareholders will be
notified of a discontinuation. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase
of the Shares. If a shareholder making a redemption qualifies for an
elimination of the contingent deferred sales charge, the shareholder must
notify Federated Securities Corp. or the transfer agent in writing that the
shareholder is entitled to such elimination.
ACCOUNT AND SHARE INFORMATION
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Fund, Federated
Shareholder Services Company maintains a share account for each
shareholder. Share certificates are not issued unless requested in writing
to Federated Shareholder Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid
during that quarter.
DIVIDENDS. Dividends are declared and paid monthly to all shareholders
invested in the Fund on the record date. Dividends and distributions are
automatically reinvested in additional Shares of the Fund on payment dates
at the ex-dividend date net asset value without a sales charge, unless
shareholders request cash payments on the new account form or by contacting
the transfer agent. All shareholders on the record date are entitled to the
dividend. If Shares are redeemed or exchanged prior to the record date or
purchased after the record date, those Shares are not entitled to that
month's dividend.
CAPITAL GAINS. Net long-term capital gains realized by the Fund, if any,
will be distributed at least once every twelve months.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Fund may redeem Shares in any account, except
retirement plans, and pay the proceeds to the shareholder if the account
balance falls below the Class A Share required minimum value of $500 or the
required minimum value of $1,500 for Class B Shares and Class C Shares.
This requirement does not apply, however, if the balance falls below the
required minimum value because of changes in the net asset value of the
respective Share Class. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The
Directors are responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Passport
Research Ltd., the Fund's investment adviser (the `Adviser''), subject to
direction by the Directors. Passport Research, Ltd. is located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Adviser
continually conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which
it receives an annual fee from the Fund.
Both the Fund and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Directors and could result in severe
penalties.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Passport Research, Ltd. is a Pennsylvania limited
partnership organized in 1981. Federated Advisers is the general partner of
the Adviser and has a 50.5% interest in the Adviser. Federated Advisers is
a subsidiary of Federated Investors. Edward D. Jones & Co. L.P. is the
limited partner of the Adviser and has a 49.5% interest in the Adviser.
Passport Research, Ltd. has also acted as investment adviser for Edward D.
Jones & Co. Daily Passport Cash Trust since 1982. Employees of the Adviser
are also employees of other advisers which are affiliates of Federated
Investors.
Passport Research, Ltd. and other subsidiaries of Federated Investors serve
as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Linda A. Duessel has been the Fund's portfolio manager since April 1995.
Ms. Duessel joined Federated Investors in 1991 and has been a Vice
President of the Fund's Adviser since 1995. Ms. Duessel was an Assistant
Vice President of the Fund's Adviser from 1991 until 1995. Ms. Duessel is
a Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the
Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a
number of investment companies. Federated Securities Corp. is a subsidiary
of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers
The distributor may offer to pay financial institutions an amount equal to
1% of the net asset value of Class C Shares purchased by their clients or
customers at the time of purchase. These payments will be made directly by
the distributor from its assets, and will not be made from assets of the
Fund. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge.
The distributor will pay dealers an amount equal to 5.50% of the net asset
value of Class B Shares purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will
not be made from the assets of the Fund. Dealers may voluntarily waive
receipt of all or any portion of these payments. The distributor may pay a
portion of the distribution fee discussed below to financial institutions
that waive all or any portion of the advance payments.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES Under a distribution plan adopted in accordance with Investment
Company Act Rule 12b-1 (the "Distribution Plan"), Class B Shares and Class
C Shares will pay a fee to the distributor in an amount computed at an
annual rate of .75% of the average daily net assets of each class of Shares
to finance any activity which is principally intended to result in the sale
of Shares subject to the Distribution Plan. For Class C Shares, the
distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to
provide sales services or distribution-related support services as agents
for their clients or customers. With respect to Class B Shares, because
distribution fees to be paid by the Fund to the distributor may not exceed
an annual rate of .75% of each class of Shares' average daily net assets,
it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support
services pursuant to the Plan.
The Distribution Plan is a compensation type Plan. As such, the Fund makes
no payments to the distributor except as described above. Therefore, the
Fund does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by Shares under the Plan.
In addition, the Fund has entered into a Shareholder Services Agreement
with Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25 of 1% of the average
daily net asset value of Class A Shares, Class B Shares, and Class C Shares
to obtain certain personal services for shareholders and for the
maintenance of shareholder accounts. Under the Shareholder Services
Agreement, Federated Shareholders Services will either perform shareholder
services directly or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon
Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to
time by the Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. Federated Securities
Corp. will pay financial institutions, at the time of purchase of Class A
Shares, an amount equal to .50 of 1% of the net asset value of Class A
Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments
are subject to a reclaim from the financial institution should the assets
leave the program within 12 months after purchase.)
Furthermore, with respect to Class A Shares, Class B Shares, and Class C
Shares, in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp and Federated
Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substancial sales
services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars
for their employees, providing sales literature, and engineering computer
software programs that emphasize the attributes of the Fund. Such
assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made
by the distributor may be reimbursed by the Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Services Company provides these at an annual
rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors as specified below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
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 Services Company may choose voluntarily to waive a portion of its
fee.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling shares of the Fund and other funds distributed by Federated
Securities Corp. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each shareholder has one vote in Director elections and other matters
submitted to shareholders for vote. All shares of each portfolio or class
in the Fund have equal voting rights, except that in matters affecting only
a particular portfolio or class, only shares of that particular portfolio
or class are entitled to vote. As of February 12, 1997, Merrill Lynch
Pierce Fenner & Smith, Jacksonville, Florida, acting in various capacities
for numerous accounts, was the owner of record of 30.38% of the voting
securities of the Class C Shares of the Fund, and therefore, may, for
certain purposes be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
As a Maryland Corporation, the Fund is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under
certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors
upon the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
STATE AND LOCAL TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for each
class of Shares including Class F Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in each class of Shares after reinvesting all
income and capital gains distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage.
The yield of each class of Shares is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by each class of Shares over a thirty-day period by the
maximum offering price per share of each class on the last day of the
period. This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by each class of
Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales charge
and other similar non-recurring charges, such as the contingent deferred
sales charge, which, if excluded, would increase the total return and
yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, Class C Shares, and Class F Shares.
From time to time, advertisements for the Class A Shares, Class B Shares,
Class C Shares and Class F Shares of the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, Class C Shares
and Class F Shares to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to
a front-end sales charge, a contingent deferred sales charge, a Shareholder
Services Agreement, and a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is
$50.
Class A Shares, Class B Shares, Class C Shares and Class F Shares are
subject to certain of the same expenses; however, the front-end sales
charge for Class F Shares is lower than that for Class A Shares. Expense
differences, however, between Class A Shares, Class B Shares, Class C
Shares and Class F Shares may affect the performance of each class.
To obtain more information and a prospectus for Class F Shares, investors
may call 1-800-235-4669 or contact their financial institution.
ADDRESSES
Federated Utility Fund, Inc.
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, PA 15222-3779
Class C Shares
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Ernst & Young LLP One Oxford Ceantre
Pittsburgh, PA 15219
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Class A Shares
Class B Shares
Class C Shares
Prospectus
An Open-End, Diversified
Management Investment Company
April , 1997
---
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors
CUSIP 314286105
CUSIP 314286204
CUSIP 314286303
G01154-01 (4/97)
Federated Utility Fund, Inc.
(Formerly, Liberty Utility Fund, Inc.)
Class F Shares
Prospectus
The shares of Federated Utility Fund, Inc. (the "Fund") offered by this
prospectus represent interests in the Fund which is an open-end,
diversified management investment company (a mutual fund).
The Fund invests in a diversified portfolio comprised primarily of equity
securities to achieve current income and long-term growth of income.
Capital appreciation is a secondary objective.
The shares offered by this prospectus are not deposits or obligations of
any bank, are not endorsed or guaranteed by any bank, and are not insured
by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or
any other government agency. Investment in these shares involves investment
risk including the possible loss of principal.
This prospectus contains the information you should read and know before
you invest in Class F Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated April ,
---
1997, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information, or a paper copy of this prospectus, if you have
received it electronically, free of charge by calling 1-800-235-4669. To
obtain other information or to make inquiries about the Fund, contact your
financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated April , 1997
---
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
FINANCIAL HIGHLIGHTS-CLASS F SHARES
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. From the date of the Fund's initial public offering in 1987 until
May 27, 1988, the Fund was operated as a closed-end investment company. On
May 16, 1988, the shareholders of the Fund approved the conversion of the
Fund from a closed-end investment company to an open-end investment
company. Shareholders of the Fund, at a meeting held January 18, 1990,
approved the Fund's name change from Progressive Income Equity Fund, Inc.
to Liberty Utility Fund, Inc. At a meeting of the Board of Directors held
on February 26, 1996, the Directors approved an amendment to the Articles
of Incorporation to change the name of Liberty Utility Fund, Inc. to
Federated Utility Fund, Inc. The Articles of Incorporation permit the Fund
to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to the Fund, as of the date of this
prospectus, the Board of Directors has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares and Class F Shares
(individually and collectively as the context requires, "Shares"). This
prospectus relates only to the Class F Shares of the Fund.
Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. A minimum
initial investment of $1,500 is required, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.
Shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value; however, a contingent deferred sales charge is
imposed on shares, other than shares purchased through reinvestment of
dividends, which are redeemed within one to four years of their purchase
dates.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES
The primary investment objectives of the Fund is current income and long-
term growth of income. Capital appreciation is a secondary objective. While
there is no assurance that the Fund will achieve its investment objectives,
it endeavors to do so by following the policies described in this
prospectus. The investment objectives cannot be changed without approval of
shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will seek to achieve its investment
objectives by investing primarily in common stocks, preferred stocks, units
of participation in master limited partnerships which are traded on
national securities exchanges, securities convertible into stock, and debt
securities issued by companies in the utilities industry. Under normal
conditions, with respect to 65% of its assets, the Fund will invest in
utility companies that derive 50% of their revenues from utilities or
assets relating to utility industries. Securities issued by companies in
the utilities industry include companies engaged in the production,
transmission or distribution of electric energy or gas, or in
communications facilities such as telephone or telegraph services.
Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. ("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, or (iii) the subordinated debt of issuers whose senior
debt obligations are deemed to be investment grade by either of the
aforementioned rating services. These subordinated debt securities may be
unrated or rated below investment grade by Moody's or S&P. Securities rated
in the lowest category of investment grade have speculative
characteristics. Changes in economic or other circumstances are more likely
to lead to weakened capacity to make principal and interest payments than
higher rated bonds. The prices of fixed income securities fluctuate
inversely to the direction of interest rates.
For temporary or defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its
agencies or instrumentalities, commercial paper rated not lower than A-1 by
S&P or Prime-1 by Moody's or repurchase agreements.
The investment policies described above cannot be changed without
shareholder approval.
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. The
Directors apply this limitation to debt convertible securities.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the
Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income,
the Fund may lend its portfolio securities, on a short-term or long-term
basis, to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will limit the amount of portfolio securities it may
lend to not more than one-third of its total assets. The Fund will only
enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in cash
or United States government securities that will be maintained in an amount
equal to at least 100% of the current market value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its
total assets in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its
investment objectives and policies but which are subject to restriction on
resale under federal securities law. To the extent these securities are
deemed to be illiquid, the Fund will limit its purchases together with
other securities considered to be illiquid to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices. Accordingly, the Fund may pay more or
less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, the Fund may enter in
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
COVERED CALL OPTIONS. The Fund may also write call options on all or any
portion of its portfolio to generate income for the Fund. Call options
written by the Fund give the holder the right to buy the underlying
securities of the Fund at the stated exercise price. The Fund will write
call options only on securities either held in its portfolio, or for which
it has the right to obtain without payment of further consideration, or for
which it has segregated cash in the amount of any additional consideration.
The call options which the Fund writes and sells must be listed on a
recognized options exchange. The Fund's investment in call options shall
not exceed 5% of the Fund's total assets.
SECURITIES OF FOREIGN ISSUERS. The Fund may purchase American Depository
Receipts ("ADRs") issued by U.S. Banks as a substitute for direct ownership
of securities of foreign companies in the utilities industry. ADRs are
traded in the United States on stock exchanges and in the over-the-counter
markets like stocks of domestic companies.
INVESTMENT RISKS
The Fund will attempt to meet its investment objectives by being at least
65% invested in securities issued by companies in the domestic and foreign
utilities industries. There are certain risks associated with the utilities
industries and with foreign securities of which investors in the Fund
should be aware.
CONSIDERATIONS OF UTILITY SECURITIES. There are certain risks and
considerations affecting utility companies, and the holders of utility
company securities, which an investor should take into account when
investing in those securities. Factors which may adversely affect utility
companies include: difficulty in financing large construction programs
during inflationary periods; technological innovations which may cause
existing plants, equipment, or products to become less competitive or
obsolete; the impact of natural or man-made disasters (especially on
regional utilities); increased costs or reductions in production due to the
unavailability of appropriate types of fuel; seasonally or occasionally
reduced availability or higher cost of natural gas; and reduced demand due
to energy conservation among consumers. The revenues of domestic and
foreign utility companies generally reflect the economic growth and
developments in the geographic areas in which they do business.
Furthermore, utility securities tend to be interest rate sensitive.
In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of
such regulation is to ensure desirable levels of service and adequate
capacity to meet public demand. To this end, prices are often regulated to
enable consumers to obtain service at what is perceived to be a fair price,
while attempting to provide utility companies with a rate of return
sufficient to attract capital investment necessary for continued operation
and necessary growth. Recently, utility regulators have permitted utilities
to diversify outside of their original geographic regions and their
traditional lines of business. While the Adviser believes that these
opportunities will permit certain utility companies to earn more than their
traditional regulated rates of return, other companies may be forced to
defend their core business and may be less profitable. Of course, there can
be no assurance that all of the regulatory policies described in this
paragraph will continue in the future.
In addition to the effects of regulation described in the previous
paragraph, utility companies may also be adversely affected by the
following regulatory considerations: the development and implementation of
a national energy policy; the differences between regulatory policies of
different jurisdictions (or different regulators which have concurrent
jurisdiction); shifts in regulatory policies; adequacy of rate increases;
and future regulatory legislation.
Foreign utility companies may encounter different risks and opportunities
than those located in the United States. Foreign utility companies may be
more heavily regulated than their United States counterparts. Many foreign
utility companies currently use fuels which cause more pollution than fuels
used by United States utilities; in the future, it may be necessary for
such foreign utility companies to invest heavily in pollution control
equipment or otherwise meet pollution restrictions. Rapid growth in certain
foreign economies may encourage the growth of utility industries in those
countries. Although many foreign utility companies are currently
government-owned, the Adviser believes that it is likely that some foreign
governments will seek to "privatize" their utility companies, i.e.,
transfer ownership to private investors.
In addition to the foregoing considerations which affect most utility
companies, there are specific considerations which affect specific utility
industries:
ELECTRIC. The electric utility industry is made up of companies that are
engaged in the generation, transmission, and sale of electric energy.
Domestic electric utility companies have generally been favorably affected
by lower fuel and financing costs and the completion of major construction
programs. Some electric utilities are able to sell power outside of their
traditional geographic areas. Electric utility companies have historically
been subject to increases in fuel and other operating costs, high interest
costs on borrowings needed for capital construction programs, compliance
with environmental and safety regulations, and changes in the regulatory
climate.
In the United States, the construction and operation of nuclear power
facilities is subject to a high degree of regulatory oversight by the
Nuclear Regulatory Commission and state agencies with concurrent
jurisdiction. In addition, the design, construction, licensing, and
operation of nuclear power facilities are often subject to lengthy delays
and unanticipated costs due to changes in regulatory policy, regional
political actions, and lawsuits. Furthermore, during rate authorizations,
utility regulators may disallow the inclusion in electric rates of the
higher operating costs and expenditures resulting from these delays and
unanticipated costs, including the costs of a nuclear facility which a
utility company may never be able to use.
TELECOMMUNICATIONS. The telephone industry is large and highly
concentrated. The greatest portion of this segment is comprised of
companies which distribute telephone services and provide access to the
telephone networks. While many telephone utility companies have diversified
into other businesses in recent years, the profitability of telephone
utility companies could be adversely affected by increasing competition,
technological innovations, and other structural changes in the industry.
Cable television companies are typically local monopolies, subject to
scrutiny by both utility regulators and municipal governments. Emerging
technologies and legislation encouraging local competition are combining to
threaten these monopolies and may slow future growth rates of these
companies. The radio telecommunications segment of this industry, including
cellular telephone, is in its early developmental phases and is
characterized by emerging, rapidly growing companies.
GAS. Gas transmission and distribution companies are undergoing
significant changes. In the United States, the Federal Energy Regulatory
Commission is reducing its regulation of interstate transmission of gas.
While gas utility companies have in the recent past been adversely affected
by disruptions in the oil industry, increased concentration, and increased
competition, the Adviser believes that environmental considerations should
benefit the gas industry in the future.
WATER. Water utility companies purify, distribute, and sell water. This
industry is highly fragmented because most of the water supplies are owned
by local authorities. Water utility companies are generally mature and are
experiencing little or no per capita volume growth. The Adviser believes
that favorable investment opportunities may result if anticipated
consolidation and foreign participation in this industry occurs.
REDUCING RISKS OF UTILITY SECURITIES. The Adviser believes that the risks
of investing in utility securities can be reduced. The professional
portfolio management techniques used by the Fund to attempt to reduce these
risk include credit research and diversification techniques. The Adviser
will perform its own credit analysis in addition to using recognized rating
agencies and other sources, including discussions with the issuer's
management, the judgment of other investment analysts, and its own informed
judgment. The Adviser's credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow, interest or dividend
coverage, and earnings. In evaluating an issuer, the Adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical costs.
SECURITIES OF FOREIGN ISSUERS. Investing in non-U.S. securities carries
substantial risks in addition to those associated with domestic
investments. In an attempt to reduce some of these risks, the Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries.
The Fund will take advantage of the unusual opportunities for higher
returns available from investing in developing countries and may invest up
to 10% of its total assets in the utility securities of such countries.
These investments carry considerably more volatility and risk because they
are associated with less mature economies and less stable political
systems.
EXCHANGE RATES. Foreign securities are denominated in foreign currencies.
Therefore, the value in U.S. dollars of the Fund's assets and income may be
affected by changes in exchange rates and regulations.
Although the Fund values its assets daily in U.S. dollars, it will not
convert its holding of foreign currencies to U.S. dollars daily.
When the Fund converts its holdings to another currency, it may incur
conversion costs. Foreign exchange dealers realize a profit on the
difference between the prices at which they buy and sell securities.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
oless publicly available information about foreign companies;
othe lack of uniform financial accounting standards applicable to
foreign companies;
oless readily available market quotations on foreign companies;
odifferences in government regulation and supervision of foreign
stock exchanges, brokers, listed companies, and banks;
ogenerally lower foreign stock market value;
othe likelihood that foreign securities may be less liquid or more
volatile;
oforeign brokerage commissions may be higher;
ounreliable mail service between countries; and
opolitical or financial changes which adversely affect investments in
some countries.
RISK CONSIDERATIONS IN DEVELOPING COUNTRIES. Securities prices in
developing countries can be significantly more volatile than in developed
countries, reflecting the greater uncertainties of investing in lesser
developed markets and economies. In particular, developing countries may
have relatively unstable governments, and may present the risk of
nationalization of businesses, expropriation, confiscatory taxation or, in
certain instances, reversion to closed market, centrally planned economies.
Such countries may also have restrictions on foreign ownership or
prohibitions on the repatriation of assets, and may have less protection of
property rights than developed countries.
The economies of developing countries may be predominantly based on only a
few industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme
and volatile debt burdens or inflation rates. In addition, securities
markets in developing countries may trade a small number of securities and
may be unable to respond effectively to increase in trading volume,
potentially resulting in a lack of liquidity and in volatility in the price
of securities traded on those markets. Also, securities markets in
developing countries typically offer less regulatory protection for
investors.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the Fund. Although the Fund is unaware of any current restrictions,
investors are advised that these policies could be reinstituted.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:
oinvest more than 25% of its total assets (valued at time of
investment) in securities of companies engaged principally in any
one industry other than the utilities industry, except that this
restriction does not apply to cash or cash items and securities
issued or guaranteed by the United States government or its
agencies or instrumentalities;
oinvest more than 5% of the value of its total assets in securities
of companies, including their predecessors, which have been in
operation for less than three years;
oinvest more than 5% of its total assets (valued at the time of
investment) in the securities of any one issuer, except that this
restriction does not apply to cash and cash items, repurchase
agreements, and securities issued or guaranteed by the United
States government or its agencies or instrumentalities;
oacquire more than 10% of the outstanding voting securities of any
one issuer (at the time of acquisition);
oborrow money, issue senior securities, or pledge assets, except that
under certain circumstances the Fund may borrow money and engage in
reverse repurchase transactions in amounts up to one-third of the
value of its net assets, including the amounts borrowed, and pledge
up to 10% of the value of those assets to secure such borrowings.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
any such borrowings are outstanding. However, during the period any
reverse repurchase agreements are outstanding, but only to the
extent necessary to assure completion of the reverse repurchase
agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements;
olend any of its assets except portfolio securities up to one-third
of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by
the Fund's investment objectives and policies;
owrite call options on securities unless the securities are held in
the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash
in the amount of any further payment. The Fund's investment in put
or call options, straddles, spreads, or any combination thereof
shall not exceed 5% of the Fund's total assets;
oinvest more than 5% of its net assets in warrants, not more than 2%
of which can be warrants not listed on recognized exchanges; or
oinvest more than 15% of total assets in securities of foreign
issuers not listed on recognized exchanges.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes
in value or in the number of outstanding securities of an issuer will not
be considered a violation.
NET ASSET VALUE
The Fund's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of the Class F Shares in the
market value of all securities and other assets of the Fund, subtracting
the interest of the Class F Shares in the liabilities of the Fund and
those attributable to the Class F Shares, and dividing the remainder by
the total number of Class F Shares outstanding. The net asset value for
Class F Shares may differ from that of Class A Shares, Class B Shares, and
Class C Shares due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
INVESTING IN CLASS F SHARES
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has
a sales agreement with the distributor or directly from the distributor,
Federated Securities Corp., either by mail or by wire. The Fund reserves
the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial
institution (such as a bank or an investment dealer) to place an order to
purchase Shares. Orders through a financial institution are considered
received when the Fund is notified of the purchase order. Purchase orders
through a registered broker/dealer must be received by the broker before
4:00 P.M. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 P.M. (Eastern time) in order for Shares to be purchased at that
day's price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before
4:00 P.M. (Eastern time) in order for Shares to be purchased at that day's
price. It is the financial institution's responsibility to transmit orders
promptly.
The financial institution which maintains investor accounts with the Fund
must do so on a fully disclosed basis unless it accounts for share
ownership periods used in calculating the contingent deferred sales charge
(see "Contingent Deferred Sales Charge"). In addition, advance payments
made to financial institutions may be subject to reclaim by the distributor
for accounts transferred to financial institutions which do not maintain
investor accounts on a fully disclosed basis and do not account for share
ownership periods (see "Supplemental Payments to Financial Institutions").
DIRECTLY BY MAIL. To purchase Shares by mail directly from Federated
Securities Corp.:
ocomplete and sign the new account form available from the Fund;
oenclose a check made payable to Federated Utility Fund-- Class F
Shares; and
omail both to Federated Services Company, P.O. Box 8600, Boston, MA
02266-8600.
Orders by mail are considered received after payment by check is converted
by the transfer agent's bank, State Street Bank and Trust Company (`State
Street Bank'), into federal funds. This is generally the next business day
after State Street Bank receives the check.
DIRECTLY BY WIRE Once an account has been established, Shares may be
purchased by wire by calling the Fund. All information needed will be taken
over the telephone, and the order is considered received when State Street
Bank receives payment by wire. Federal funds should be wired as follows:
State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For
Credit to: (Fund Name) (Fund Class); (Fund Number); Account Number; Trade
Date and Order Number; Group Number or Dealer Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $1,500, except for an IRA
account, which requires a minimum initial investment of $50. Subsequent
investments must be in amounts of at least $100, except for an IRA account,
which must be in amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01%
of the net amount invested). There is no sales charge for purchases of $1
million or more. Shareholders of record in the Fortress Utility Fund on
September 30, 1989, are exempt from the sales charge for purchases of
shares of the Fund in their existing accounts as long as they maintain a
$500 balance in the Fund. In addition, no sales charge is imposed for
Shares purchased through bank trust departments or investment advisers
registered under the Investment Advisers Act of 1940, as amended,
purchasing on behalf of their clients, or by sales representatives,
Directors, and employees of the Fund, Federated Advisers, and Federated
Securities Corp., or their affiliates, or any investment dealer who has a
sales agreement with Federated Securities Corp., their spouses and children
under age 21, or any trusts or pension or profit-sharing plans for these
persons, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates. Unaffiliated institutions through whom Shares are purchased may
charge fees for services provided which may be related to the ownership of
Fund Shares. This prospectus should, therefore, be read together with any
agreement between the customer and the institution with regard to services
provided, the fees charged for these services, and any restrictions and
limitations imposed.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
DEALER CONCESSION. For sales of Shares, broker/dealers will normally
receive 100% of the applicable sales charge. Any portion of the sales
charge which is not paid to a broker/dealer will be retained by the
distributor. However, from time to time, and at the sole discretion of the
distributor, all or part of that portion may be paid to a dealer. The sales
charge for Shares sold other than through registered broker/dealers will be
retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of
Shares.
ELIMINATING THE SALES CHARGE
The sales charge can be eliminated on the purchase of Shares through:
oquantity discounts and accumulated purchases;
osigning a 13-month letter of intent;
ousing the reinvestment privilege; or
oconcurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. There is no sales charge for
purchases of $1 million or more. The Fund will combine purchases made on
the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge. In addition, the sales charge is
eliminated for purchases of $1 million or mopre made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a
shareholder already owns Shares having current value at the public offering
price of $900,000 and he purchases $100,000 more at the current public
offering price, there will be no sales charge on the additional purchase.
The Fund will also combine purchases for the purpose of reducing the
contingent deferred sales charge imposed on some Share redemptions. For
example, if a shareholder already owns Shares having current value at the
public offering price of $1 million and purchases an additional $1 million
at the current public offering price, the applicable contingent deferred
sales charge would be reduced to .50% of those additional Shares. For more
information on the levels of contingent deferred sales charges and holding
periods, see the section entitled "Contingent Deferred Sales Charge."
To receive the sales charge elimination and/or the contingent deferred
sales charge reduction, Federated Securities Corp. must be notified by the
shareholder in writing or by the shareholder's financial institution at the
time the purchase is made that Shares are already owned or that purchases
are being combined. The Fund will eliminate the sales charge and/or reduce
the contingent deferred sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $1 million
of Shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge elimination depending on the amount actually
purchased within the 13-month period and a provision for the Fund's
custodian to hold 1.00% of the total amount intended to be purchased in
escrow (in Shares) until such purchase is completed.
The 1.00% held in escrow will be applied to the shareholder's account at
the end of the 13-month period unless the amount specified in the letter of
intent, which must be $1 million or more of Shares, is not purchased. In
this event, an appropriate number of escrowed Shares may be redeemed in
order to realize the 1.00% sales charge.
This letter of intent also includes a provision for reductions in the
contingent deferred sales charge and holding period depending on the amount
actually purchased within the 13-month period. For more information on the
various levels of contingent deferred sales charges and holding periods,
see the section entitled "Contingent Deferred Sales Charge."
This letter of intent will not obligate the shareholder to purchase Shares.
The letter may be dated as of a prior date to include any purchases made
within the past 90 days (purchases within the prior 90 days may be used to
fulfill the requirements of the letter of intent; however, the sales charge
on such purchases will not be adjusted to reflect a lower sales charge).
REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated
Securities Corp. must be notified by the shareholder in writing or by his
financial institution of the reinvestment in order to receive this
elimination of the sales charge. If the shareholder redeems his Shares,
there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
elimination, a shareholder has the privilege of combining concurrent
purchases of two or more funds, the purchase prices of which include a
sales charge. For example, if a shareholder concurrently invested $400,000
in one of the other Federated Funds and $600,000 in Shares, the sales
charge would be eliminated.
To receive this sales charge elimination, Federated Securities Corp. must
be notified by the shareholder in writing or by his financial institution
at the time the concurrent purchases are made. The Fund will eliminate the
sales charge after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking
account and invested in Shares at the net asset value next determined after
an order is received by the Fund, plus the 1.00% sales charge for purchases
under $1 million. A shareholder may apply for participation in this program
through Federated Securities Corp. or his financial institution.
EXCHANGE PRIVILEGES
Class F shareholders may exchange all or some of their Shares, at net asset
value for Class F Shares of other funds which are advised by subsidiaries
or affiliates of Federated Investors (`Federated Funds''). (Not all
Federated Funds currently offer Class F Shares. Contact your financial
institution regarding the availability of other Federated Class F Shares).
Exchanges are made at net asset value without being assessed a contingent
deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class F Shares in other Federated Funds,
the time for which the exchanged-for Shares are to be held will be added to
the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.
Shareholders using this privilege must exchange Shares having a net asset
value equal to the minimum investment requirements of the fund into which
the exchange is being made. Shareholders who desire to automatically
exchange Class F Shares of a predetermined amount on a monthly, quarterly,
or annual basis may take advantage of a systematic exchange privilege.
Further information on these exchange privileges is available by calling
Federated Securities Corp. or the shareholder's financial institution. The
exchange privilege is available to shareholders residing in any state in
which the shares being acquired may be legally sold.
Before making an exchange, a shareholder must receive a prospectus of the
fund for which the exchange is being made.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested on the application or by contacting Federated
Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during
that month.
DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-
dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased
after the record date, those Shares are not entitled to that quarter's
dividend.
CAPITAL GAINS
Net long-term capital gains realized by the Fund, if any, will be
distributed at least once every twelve months.
REDEEMING CLASS F SHARES
The Fund redeems Shares at their net asset value, less any applicable
contingent deferred sales charge next determined after the Fund receives
the redemption request. Redemptions will be made on days on which the Fund
computes its net asset value. Redemption requests must be received in
proper form and can be made through a financial institution or directly
from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial
institution (such as a bank or an investment dealer) to request the
redemption. Shares will be redeemed at the net asset value next determined
after the Fund receives the redemption request from the financial
institution. Redemption requests through a registered broker/dealer must be
received by the broker before 4:00 P.M. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 P.M. (Eastern
time) in order for Shares to be redeemed at that day's net asset value. The
financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the Fund.
The financial institution may charge customary fees and commissions for
this service. If, at any time, the Fund shall determine it necessary to
terminate or modify this method of redemption, shareholders will be
promptly notified.
Before a financial institution may request redemption by telephone on
behalf of a shareholder, an authorization form permitting the Fund to
accept redemption requests by telephone must first be completed. In the
event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Redeeming Shares by Mail," should be
considered.
Telephone redemption instructions may be recorded. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent instructions.
REDEEMING SHARES BY TELEPHONE
Shares may be redeemed in any amount by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds will be mailed in the form of a
check, to the shareholder's address of record or by wire transfer to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. The minimum amount for a wire transfer is $1,000.
Proceeds from redeemed Shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be
wired the following business day. Questions about telephone redemptions
on days when wire transfers are restricted should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or
market changes, a shareholder may experience difficulty in redeeming by
telephone. If this occurs, "Redeeming Shares By Mail" should be considered.
If at any time the Fund shall determine it necessary to terminate or modify
the telephone redemption privilege, shareholders would be promptly
notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-
8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name and the Share Class name ;
the account name as registered with the Fund; the account number; and the
number of shares to be redeemed or the dollar amount requested. All owners
of the account must sign the request exactly as the shares are registered.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
SIGNATURES. .Shareholders requesting a redemption of any amount to be sent
to an address other than that on record with the Fund or a redemption
payable other than to the shareholder of record must have their signatures
guaranteed by:
oa trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
oa member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
oa savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
oany other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. A check for the proceeds is mailed within seven days
after receipt of proper written redemption instructions from a broker or
from the shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Class F Shares from their Fund account within
certain periods of the purchase date of those Shares will be charged a
contingent deferred sales charge by the Fund's distributor of the lesser of
the original price or the net asset value of the Shares redeemed as
follows:
Amount of Contingent Deferred
Purchase Shares Held Sales Charge
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%
To the extent that a shareholder exchanges between or among Class F
Shares in other Federated Funds, the time for which the exchanged-for
Shares were held will be added, or `tacked'', to the time for which the
exchanged-from Shares were held for purposes of satisfying the one-year
holding period.
In instances in which Shares have been acquired in exchange for Class F
Shares in other Federated Funds, (i) the purchase price is the price of the
Shares when originally purchased and (ii) the time period during which the
Shares are held will run from the date of the original purchase. The
contingent deferred sales charge will not be imposed on Shares acquired
through the reinvestment of dividends or distributions of long-term capital
gains. In computing the amount of contingent deferred sales charge for
accounts with Shares subject to a single holding period, if any,
redemptions are deemed to have occurred in the following order: 1) first of
Shares acquired through the reinvestment of dividends and long-term capital
gains, 2) second of purchases of Shares occurring prior to the number of
years necessary to satisfy the applicable holding period, and 3) finally of
purchases of Shares occurring within the current holding period. For
accounts with Shares subject to multiple share holding periods, the
redemption sequence will be determined first, with reinvested dividends and
long-term capital gains, and second, on a first-in, first-out basis.
The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a
total or partial distribution from a qualified plan, other than an IRA,
Keogh Plan, or a custodial account, following retirement; (ii) a total or
partial distribution from an IRA, Keogh Plan, or a custodial account after
the beneficial owner attains age 59-1/2; or (iii) from the death or
disability of the beneficial owner. The exemption from the contingent
deferred sales charge for qualified plans, an IRA, Keogh Plan, or a
custodial account does not extend to account transfers, rollovers, and
other redemptions made for purposes of reinvestment. Contingent deferred
sales charges are not charged in connection with exchanges of Shares for
Class F Shares in certain other Federated Funds, or in connection with
redemptions by the Fund of accounts with low balances. Shares of the Fund
originally purchased through a bank trust department, investment adviser
registered under the Investment Advisers Act of 1940, as amended, or
retirement plans where the third party administrator has entered into
certain arrangements with Federated Securities Corp. or its affiliates, are
not subject to the contingent deferred sales charge, to the extent that no
payment was advanced for purchases made by such entities.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal
Program. Under this program, Shares are redeemed to provide for periodic
withdrawal payments in an amount directed by the shareholder; the minimum
withdrawal amount is $100. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares
redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on
the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have invested at least $10,000 in the Fund
(at current offering price).
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge
and contingent deferred sales charge, it is not advisable for shareholders
to be purchasing Shares while participating in this program.
A contingent deferred sales charge is charged for Shares redeemed through
this program within four years of their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem Shares in any account and pay the proceeds to the shareholder if
the account balance falls below the required minimum value of $1,500. This
requirement does not apply, however, if the balance falls below $1,500
because of changes in the Fund's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional Shares to meet the minimum
requirement.
FUND INFORMATION
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The
Directors are responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the
shareholders. An Executive Committee of the Board of Directors handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Passport
Research Ltd., the Fund's investment adviser, subject to direction by the
Directors. Passport Research, Ltd. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Adviser continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual
fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The fee paid by
the Fund, while higher than the advisory fee paid by other mutual funds in
general, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser may voluntarily waive a portion of its
fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Passport Research, Ltd. is a Pennsylvania limited
partnership organized in 1981. Federated Advisers is the general partner of
the Adviser and has a 50.5% interest in the Adviser. Federated Advisers is
a subsidiary of Federated Investors. Edward D. Jones & Co. L.P. is the
limited partner of the Adviser and has a 49.5% interest in the Adviser.
Passport Research, Ltd. has also acted as investment adviser for Edward D.
Jones & Co. Daily Passport Cash Trust since 1982. Employees of the Adviser
are also employees of other advisers which are affiliates of Federated
Investors.
Passport Research, Ltd. and other subsidiaries of Federated Investors serve
as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Linda A. Duessel has been the Fund's portfolio manager since April 1, 1995.
Ms. Duessel joined Federated Investors in 1991 and has been a Vice
President of the Fund's investment adviser since 1995. Ms. Duessel was an
Assistant Vice President of the Fund's investment adviser from 1991 until
1995. Ms. Duessel is a Chartered Financial Analyst and received her M.S.
in Industrial Administration from Carnegie Mellon University.
Both the Fund and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Fund and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Fund's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Directors and could result in severe
penalties.
DISTRIBUTION OF CLASS F SHARES
Federated Securities Corp. is the principal distributor for Class F Shares
of the Fund. Federated Securities Corp. is located at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania
corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
SHAREHOLDER SERVICES. The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Fund will make payments up to .25 of 1% of the
average daily net asset value of the Fund on behalf of Class F Shares,
computed at an annual rate, to obtain certain personal services for
shareholders and to provide the maintainance of shareholder accounts
(`shareholder services'). From time to time and for such periods as deemed
appropriate, the amount stated may be reduced voluntarily. Federated
Shareholder Services will either perform shareholder services directly or
will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedule of such fees and the basis upon which
such fees will be paid will be determlined from time to time by the Fund
and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor will pay
financial institutions, for distribution and/or administrative services, an
amount equal to 1.00% of the offering price of the Shares acquired by their
clients or customers on purchases up to $1,999,999, .50% of the offering
price on purchases of $2,000,000 to $4,999,999, and .25% of the offering
price on purchases of $5,000,000 or more. (This fee is in addition to the
1.00% sales charge on purchases of less that $1 million.) The financial
institutions may elect to waive the initial payment described above; such
waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include participating in
sales, educational and training seminars at recreational-type facilities,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated
upon the amount of Shares the financial institution sells or may sell,
and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Fund. Federated Administrative Services provides these at an
annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Federated Funds
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
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.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
adviser may give consideration to those firms which have sold or are
selling shares of the Fund and other funds distributed by Federated
Securities Corp. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Directors.
EXPENSES OF THE FUND AND CLASS F SHARES
Holders of shares pay their allocable portion of Fund expenses.
The Fund expenses for which holders of Class F Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Fund
and continuing its existence; registering the Fund with federal and state
securities authorities; Directors' fees; auditors' fees; the cost of
meetings of Directors; legal fees of theFund; association membership dues;
and such non-recurring and extraordinary items as may arise.
The Fund expenses for which holders of Class F Shares pay their allocable
portion include, but are not limited to: registering the Fund and shares of
the Fund; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise.
At present, no expenses allocated to the Class F Shares as a class.
However, the Directors reserve the right to allocate certain expenses to
holders of Class F Shares as it deems appropriate (`class expenses''). In
any case, class expenses would be limited to: transfer agent fees as
identified by the transfer agent as attributable to holders of shares;
printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange
Commission and registration fees paid to state securities commissions;
expenses related to administrative personnel and services as required to
support holders of shares; legal fees relating solely to shares; and
Directors' fees incurred as a result of issues relating solely to shares.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each shareholder has one vote in Director elections and other matters
submitted to shareholders for vote. All shares of each portfolio or class
in the Fund have equal voting rights, except that in matters affecting only
a particular portfolio or class, only shares of that particular portfolio
or class are entitled to vote. As of February 12, 1997, Merrill Lynch
Pierce Fenner & Smith, Jacksonville, Florida, acting in various capacities
for numerous accounts, was the owner of record of 30.38% of the voting
securities of the Class C Shares of the Fund, and therefore, may, for
certain purposes be deemed to control the Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
As a Maryland Corporation, the Fund is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Fund's operation and for the election of Directors under
certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors
prior to such removal or by a two-thirds vote of the shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Directors upon the written request of shareholders owning at least 10% of
the Fund's outstanding shares of all series entitled to vote.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income
tax on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions
are received in cash or as additional Shares. Distributions representing
long-term capital gains, if any, will be taxable to shareholders as long-
term capital gains no matter how long the shareholders have held the
Shares. No federal income tax is due on any dividends earned in an IRA or
qualified retirement plan until distributed.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its total return and yield for Class
F Shares.
Total return represents the change, over a specific period of time, in the
value of an investment in Class F Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Class F Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by Class F Shares over a thirty-day period by the maximum offering
price per share of Class F Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Class F Shares, and
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
The performance information reflects the effect of the maximum sales
charge, and the contingent deferred sales charge, which, if excluded, would
increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares,
Class B Shares, Class C Shares, and Class F Shares. Because Class B Shares
and Class C Shares are subject to Rule 12b-1 fees, the yield for Class A
Shares and Class F Shares, for the same period, may exceed that of Class B
Shares and Class C Shares. Because Class A Shares are subject to a higher
maximum sales charge, the total return for Class B Shares, Class C Shares
and Class F Shares, for the same period, will exceed that of Class A
Shares.
From time to time, advertisements for the Class A Shares, Class B Shares,
Class C Shares and Class F Shares of the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, Class C Shares
and Class F Shares to certain indices.
OTHER CLASSES OF SHARES
The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of
financial institutions subject to certain differences.
Class A Shares are sold subject to a front-end sales charge and a
Shareholder Services Plan. Investments in Class A Shares are subject to a
minimum initial investment of $500, unless the investment is in a
retirement account, in which case the minimum investment is $50.
Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan.
Investments in Class B Shares are subject to a minimum initial investment
of $1,500, unless the investment is in a retirement account, in which case
the minimum investment is $50.
Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan.
Investments in Class C Shares are subject to a minimum investment of
$1,500, unless the investment is in a retirement account, in which case the
minimum investment is $50.
Class A Shares, Class B Shares, Class C Shares and Class F Shares are
subject to certain of the same expenses. Expense differences, however,
between Class A Shares, Class B Shares Class C Shares and Class F Shares,
may affect the performance of each class.
To obtain more information and a combined prospectus for Class A Shares,
Class B Shares and Class C Shares, investors may call 1-800-235-4669 or
contact their financial institution.
ADDRESSES
Federated Utility Fund
Class F Shares Federated Investors Tower
Pittsburgh, PA 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Public Accountants
Ernst & Young LLP One Oxford Ceantre
Pittsburgh, PA 15219
Federated Utility Fund, Inc.
(Formerly, Liberty Utility Fund, Inc.)
Class F Shares
Prospectus
An Open-End, Diversified
Management Investment Company
April , 1997
---
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors
CUSIP 314286402
G01154-03-F (4/97)
FEDERATED UTILITY FUND, INC.
(FORMERLY, LIBERTY UTILITY FUND, INC.)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for Class A Shares, Class B Shares, and Class C Shares, and
the prospectus for Class F Shares of Federated Utility Fund, Inc. (the
"Fund") each dated April , 1997. This Statement is not a prospectus
---
itself. You may request a copy of either prospectus or a paper copy of
this Statement, if you received it electronically, free of charge by
calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April , 1997
---
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314286105
Cusip 314286204
Cusip 314286303
Cusip 314286402
G-1154-02 (4/97)
TABLE OF CONTENTS WILL BE GENERATED UPON COMPLETION OF THE DOCUMENT
GENERAL INFORMATION ABOUT THE FUND
The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. It is qualified to do business as a foreign corporation in
Pennsylvania. Shareholders of the Fund, at a meeting held January 18, 1990,
shareholders approved the Fund's name change from `Progressive Income
Equity Fund, Inc.''to ``Liberty Utility Fund, Inc.'' On March 30, 1996,
the Fund's name was changed to `Federated Utility Fund, Inc.''
Shares of the Fund are offered in four classes, known as Class A Shares,
Class B Shares, Class C Shares, and Class F Shares (individually and
collectively referred to as `Shares,'' as the context may require). This
Statement of Additional Information relates to all classes of Shares of the
Fund.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is current income and long-
term growth of income. Capital appreciation is a secondary objective. The
Fund will seek to achieve its investment objectives by investing in a
diversified portfolio comprised primarily of equity securities. The
investment objectives cannot be changed without approval of shareholders.
The Fund's investment approach is based on the conviction that over the
long term the economy will continue to expand and develop and that this
economic growth will be reflected in the growth of the revenues and
earnings of utility companies.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
oinstruments of domestic and foreign banks and savings and loans if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
insured by the Bank Insurance Fund (``BIF''), which is administered
by the Federal Deposit Insurance Corporation (``FDIC''), or the
Savings Association Insurance Fund (``SAIF''), which is administered
by the FDIC; and
oprime commercial paper (rated A-1 by Standard and Poor's Ratings
Group, Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch
Investors Service).
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed
by U.S. government agencies or instrumentalities. These securities are
backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
oFarm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
oFederal Home Loan Banks;
oFarmers Home Administration; and
oFederal National Mortgage Association.
UNITS OF MASTER LIMITED PARTNERSHIPS
The Fund may invest in units of participation in master limited
partnerships. Master limited partnerships are generally partnerships with a
large number of limited partners whose ownership interests are publicly
traded. The Fund will not invest in partnerships investing in real estate
or real estate investments. The Fund will invest only in units of
participation in master limited partnerships that are traded on a national
securities exchange.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
fixed income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure, but are
usually subordinated to similar nonconvertible securities. While providing
a fixed income stream (generally higher in yield than the income derivable
from a common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the
capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser,
Passport Research, Ltd., (the `Adviser''), to be creditworthy pursuant to
guidelines established by the Board of Directors (the `Directors'').
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund,
who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) paper, thus
providing liquidity.
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission staff position set forth in the adopting release for Rule 144A
under the Securities Act of 1933 (the `Rule''). The Rule is a non-
exclusive, safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws.
The Rule provides an exemption from registration for resales of otherwise
restricted securities to qualified institutional buyers. The Rule was
expected to further enhance the liquidity of the secondary market for
securities eligible for resale under Rule 144A. The Fund believes that the
Staff of
the Securities and Exchange Commission has left the question of determining
the liquidity of all restricted securities (eligible for resale under Rule
144A) for determination by the Directors. The Directors consider the
following criteria in determining the liquidity of certain restricted
securities:
othe frequency of trades and quotes for the security;
othe number of dealers willing to purchase or sell the security and
the number of potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled.
COVERED CALL OPTIONS
The Fund will receive a premium for writing a call option which increases
the Fund's return in the event the option expires unexercised or is closed
out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to
the exercise price of the option, the term of the option and the volatility
of the market price of the underlying security. By writing a call option,
the Fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option.
The Fund may terminate a call option it has written prior to expiration of
the option by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund
will realize a gain or loss from such transaction if the cost of such
transaction is less or more than the premium received from writing the
option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security,
any loss resulting from repurchase of a call option is likely to be offset
in whole or in part by the unrealized appreciation of the underlying
security owned by the Fund.
PORTFOLIO TURNOVER
The Adviser does not anticipate that portfolio turnover will result in
adverse tax consequences. However, relatively high portfolio turnover may
result in high transaction costs to the Fund. For the fiscal years ended
February 29, 1996, and February 28, 1995, the portfolio turnover rates were
76% and 55%, respectively.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders.
CONCENTRATION OF INVESTMENTS
The Fund will not invest more than 25% of its total assets (valued at
the time of investment) in securities of companies engaged principally
in any one industry other than the utilities industry, except that this
restriction does not apply to cash or cash items and securities issued
or guaranteed by the United States government or its agencies or
instrumentalities.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not purchase securities on margin, or make short sales of
securities, except for the use of short-term credit necessary for the
clearance of purchases and sales of portfolio securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not borrow money, issue senior securities, or pledge
assets, except that under certain circumstances the Fund may borrow
money and engage in reverse repurchase transactions in amounts up to
one-third of the value of its net assets, including the amounts
borrowed, and pledge up to 10% of the value of those assets to secure
such borrowings.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
such borrowings are outstanding. However, during the period any reverse
repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, the Fund will
restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse
repurchase agreements.
PLEDGING ASSETS
The Fund will not pledge, mortgage, or hypothecate its assets, except to
secure permitted borrowings. In those cases, it may pledge, mortgage, or
hypothecate up to 10% of the value of assets to secure such borrowings
(the deposit in escrow of securities in connection with the writing of
call options or collateralizing loans of securities is not deemed to be
a pledge or hypothecation for any purpose).
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to
its custodian to collateralize such intra-day cash advances in order to
enable the Fund to settle securities purchases or to redeem shares of the
Fund.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, which have
been in operation for less than three years.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and
limitations.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets (valued at the
time of investment) in the securities of any one issuer, except that
this restriction does not apply to cash and cash items, repurchase
agreements, and securities issued or guaranteed by the United States
government or its agencies or instrumentalities; or acquire more than
10% of any class of voting securities of any one issuer (at time of
acquisition).
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. This shall not prevent
the purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by the
Fund's investment objectives and policies.
RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under federal securities law (except
for commercial paper issued under Section 4(2) of the Securities Act of
1933).
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment. The Fund's investment in put or call
options, straddles, spreads, or any combination thereof shall not exceed
5% of the Fund's total assets.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants, not
more than 2% of which can be warrants which are not listed on recognized
exchanges.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Fund will not invest more than 15% of its total assets in securities
of foreign issuers not listed on recognized exchanges.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its total assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE FUND
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Fund or its Adviser owning individually
1/2 of 1% of the issuer's securities together own more than 5% of the
issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or mineral exploration
or development programs, except it may purchase the securities of
issuers which invest in or sponsor such programs.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or any interest therein,
except that the Fund may invest in securities secured by real estate or
interests therein, such as mortgage pass-throughs, pay-throughs,
collateralized mortgage obligations, and securities issued by companies
that invest in real estate or interests therein. The Fund will not
invest in limited partnerships investing in real estate or real estate
investments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase or retain shares of any open-end investment
company (exclusive of shares acquired as a result of merger,
consolidation, or other plan of reorganization).
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest for the purpose of exercising control over or
management of any company.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes
in value or in the number of outstanding securities of an issuer will not
be considered a violation.
In addition, in order to comply with certain state restrictions, the Fund
will not invest in oil, gas, or mineral leases. If state requirements
change, this limitation may be amended without notice to shareholders.
The Fund will not purchase any securities while borrowings in excess of 5%
of the value of its total assets are outstanding.
The Fund did not borrow money or invest in reverse repurchase agreements in
excess of 5% of the value of its net assets during the last fiscal year and
has no present intention to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
FEDERATED UTILITY FUND, INC. MANAGEMENT
Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Utility Fund, Inc., and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President of
the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; Director or
Trustee of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee of the Funds; formerly, Vice Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman of
the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.
* This Director is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ;
DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint
Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of February 12, 1997, the following shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, 5.84%.
As of February 12, 1997, the following shareholder of record owned 5% or
more of the outstanding Class B Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, 7.67%.
As of February 12, 1997, the following shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, 30.38%.
As of February 12, 1997, the following shareholder of record owned 5% or
more of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce
Fenner & Smith, Jacksonville, Florida, 22.73%.
DIRECTORS COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX +
JOHN F. DONAHUE, $0 $0 FOR THE FUND AND
CHAIRMAN AND DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
THOMAS G. BIGLEY++ $814 $86,331 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
JOHN T. CONROY, JR., $1943 $115,760 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
WILLIAM J. COPELAND, $1943 115,760 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
JAMES E. DOWD, $1943 $115,760 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
LAWRENCE D. ELLIS, M.D., $1706 $104,898 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
RICHARD B. FISHER, $0 $0 FOR THE FUND AND
PRESIDENT AND DIRECTOR 6 OTHER INVESTMENT COMPANIES IN THE
FUND COMPLEX
EDWARD L. FLAHERTY, JR., $1943 $115,760 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
PETER E. MADDEN, $1706 $104,898 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
GREGOR F. MEYER, $1706 $104,898 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
JOHN E. MURRAY, JR., $1706 $104,898 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
WESLEY W. POSVAR, $1706 $104,898 FOR THE FUND AND
DIRECTOR 64 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
MARJORIE P. SMUTS, $1706 $104,898 FOR THE FUND AND
DIRECTOR 54 OTHER INVESTMENT COMPANIES IN
THE FUND COMPLEX
*Information is furnished for the fiscal year ended February 29, 1996.
#The aggregate compensation is provided for the Fund which is comprised of
1 portfolio.
+The information is provided for the last calendar year.
++Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser, Passport Research, Ltd. (the `Adviser''),
was organized as a Pennsylvania limited partnership in 1981. Federated
Advisers is the general partner of the Adviser and has a 50.5% interest in
the Adviser. The limited partner of the Adviser is Edward D. Jones & Co.,
which owns a 49.5% interest in the Adviser. Federated Advisers is owned by
FII Holdings, Inc., a subsidiary of Federated Investors. All of the voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.
At any time, Edward D. Jones & Co. can require Federated Investors to
repurchase all of its partnership interest in the Adviser at the then
current book value. Edward D. Jones & Co. cannot transfer, sell, or assign
its partnership interest in the Adviser without first offering it to
Federated Investors.
As long as Edward D. Jones & Co. owns a partnership interest in the
Adviser, it cannot acquire, organize, or cause the organization of any
other money market mutual fund or enter into arrangements with an
investment adviser or underwriter of any other money market mutual fund in
which Edward D. Jones & Co. will offer the shares of the other money market
mutual fund. Edward D. Jones & Co. has agreed not to solicit proxies in
opposition to management of the Fund unless a court of competent
jurisdiction finds the conduct of a majority of the Board of Directors
constitutes willful misfeasance, bad faith, gross negligence, or reckless
disregard of its duties.
All of the officers of the Fund, except Daniel A. Burkhardt, are officers
of the Adviser. The relationships are described under `Federated Utility
Fund, Inc. Management.''
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Passport Research, Ltd. receives an annual
investment advisory fee as described in the prospectus. During the fiscal
years ended February 29, 1996, and February 28, 1995, and 1994, the Adviser
earned $6,662,590, $6,347,619, and $6,774,071, respectively, of which
$1,225,393, $1,683,310, and $1,510,782, respectively, were voluntarily
waived.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1 1/2%
per year of the remaining average net assets, the Adviser will reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in
good faith that commissions charged by such persons are reasonable in
relationship to the value of the brokerage and research services provided.
During the fiscal years ended February 29, 1996, and February 28, 1995, and
1994, the Fund paid $1,678,849, $1,201,969, and $636,925, respectively, in
brokerage commissions.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended February
29, 1996, and February 28, 1995, and 1994, the Administrators earned
$672,236, $640,686, and $959,208, respectively. Dr. Henry J. Gailliot, an
officer of Federated Advisers, the adviser to the Fund, holds approximately
20% of the outstanding common stock and serves as director of Commercial
Data Services, Inc., a company which provides computer processing services
to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.
PURCHASING SHARES
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales charge
on Class A Shares and Class F Shares only) on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectuses under "How to Purchase Shares" and
"Investing in Class F Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT
With respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan in accordance with Investment Company Act Rule 12b-1.
Additionally, the Fund has adopted a Shareholder Services Agreement with
respect to all classes of Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, (Class B Shares and Class C Shares only)
the Directors expect that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the
Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in
rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended February 29, 1996, the Fund's Class B Shares and
Class C Shares incurred $381,781 and $466,848, respectively, in
distribution services fees, none of which were waived. In addition, for the
fiscal year ended February 29, 1996, the Class A Shares, Class B Shares and
Class C Shares, paid shareholder services fees in the amount of $1,937,945,
$127,260, and $155,616, respectively, of which $53,968, $0, and $20,578,
respectively, were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp., or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp., and their spouses and children under 21, may buy Shares at net asset
value without a sales charge. Shares may also be sold without a sales
charge to trusts or pension or profit-sharing plans for these persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for Shares,
or they may exchange a combination of convertible securities and cash for
Shares. Any securities to be exchanged must meet the investment objective
and policies of the Fund, must have a readily ascertainable market value,
must be liquid, and must not be subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund reserves
the right to reject any security, even though it appears on the list, and
the right to amend the list of acceptable securities at any time without
notice to brokers or investors.
An investment broker acting for an investor should forward the securities
in negotiable form with an authorized letter of transmittal to Federated
Securities Corp. Federated Securities Corp. will determine that transmittal
papers are in good order and forward them to the Fund's custodian, State
Street Bank and Trust Company. The Fund will notify the broker of its
acceptance and valuation of the securities within five business days of
their receipt by State Street Bank.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share will
be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities become
the property of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
oaccording to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices and for bonds
and other fixed income securities, as determined by an independent
pricing service; or
ofor short-term obligations according to the prices as furnished by an
independent pricing service or for short-term obligations with
remaining maturities of 60 days or less at the time of purchase, at
amortized cost or at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data.
EXCHANGE PRIVILEGE
This section relates only to Class F Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares, Class B Shares, and
Class C Shares of the Fund, please see the prospectus for these classes of
Shares.
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
Class F Shares for Class F Shares in other Federated Funds (which are
sold with a sales charge different from that of the Fund or with no sales
charge and which are advised by subsidiaries or affiliates of Federated
Investors) without the assessment of a contingent deferred sales charge on
the exchanged Shares.
The order also allows certain other funds that are not advised by
subsidiaries or affiliates of Federated Investors, which do not have a
sales charge, to exchange their shares for Class F Shares on a basis other
than their current offering price. These exchanges may be made to the
extent that such shares were acquired in a prior exchange, at net asset
value, for shares of a Federated Fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
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 being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses for eligible
Federated Funds are available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a short-term or long-term
capital gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for certain Federated Funds may be given in
writing or by telephone. Written instructions may require a signature
guarantee.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with
the Fund or its agents. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file
with the Fund or its agents. Shares may be exchanged between two funds
by telephone only if the two funds have identical shareholder
registrations.
Telephoned exchange instructions may be recorded. They must be received
by the transfer agent before 4:00 p.m. (Eastern time) for shares to be
exchanged that day. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to
a contingent deferred sales charge. Redemption procedures are explained in
the respective prospectuses under "How to Redeem Shares" or "Redeeming
Class F Shares." Although the transfer agent does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase, Class C Shares and
applicable Class A Shares redeemed within one year of purchase, and Class F
Shares redeemed within four years of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred
sales charge is based upon the amount of the administrative fee paid at the
time of purchase by the distributor to the financial institutions for
services rendered, and the length of time the investor remains a
shareholder in the Fund. Should financial institutions elect to receive an
amount less than the administrative fee that is stated in the prospectus
for servicing a particular shareholder, the contingent deferred sales
charge and/or holding period for that particular shareholder will be
reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Directors determine to
be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Fund is obligated to redeem Shares for any
shareholder in cash up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales
Charge may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal Program
and then as calculated at the fiscal year end. Redemptions on a qualifying
Systematic Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, 6.00% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the Contingent Deferred Sales
Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares to be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the 12 month holding requirement.
However, for purposes of meeting the $10,000 minimum account value
requirement, Class B Share account values will not be aggregated.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the
Fund must, among other requirements:
oderive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
oderive less than 30% of its gross income from gains on the sale of
securities held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. Only a nominal portion of any
income dividend paid by the Fund is expected to be eligible for the
dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund Shares.
TOTAL RETURN
The Fund's average annual total returns for Class A Shares for the one-year
and five-year periods ended February 29, 1996, and for the period from June
5, 1987 (date of initial public investment) to February 29, 1996, were
14.78%, 10.63%, and 12.12%, respectively.
The Fund's average annual total returns for Class B Shares for the one-year
period ended February 29, 1996, and
for the period from October 12, 1994 (date of initial public investment) to
February 29, 1996, were 14.79% and 12.37%, respectively.
The Fund's average annual total returns for Class C Shares for the fiscal
year ended February 29, 1996, and the period from April 30, 1993 (date of
initial public investment) to February 29, 1996, were 19.39% and 7.34%,
respectively.
The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per
Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the monthly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investments based on the
lesser of the original purchase price or the offering price of Shares
redeemed.
YIELD
The Fund's yields for Class A Shares, Class B Shares, and Class C Shares
were 3.09%, 2.30%, and 2.31%, respectively, for the thirty-day period ended
February 29, 1996.
The yield for all classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per Share of any class of Shares on the last
day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by any class of Shares because of certain
adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such variables
as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's or a class of Shares' expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one month, three month, one year, and five year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
oDOW JONES INDUSTRIAL AVERAGE (`DJIA') represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports
total sales for each group of industries. Because it represents the
top corporations of America, the DJIA index is a leading economic
indicator for the stock market as a whole.
oSTANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS, a composite index of common stocks in industry,
transportation, financial, and public utility companies, compares
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
oSTANDARD & POOR'S RATINGS GROUP UTILITY INDEX is an unmanaged index
of common stocks from forty different utilities. This index indicates
daily changes in the price of the stocks. The index also provides
figures for changes in price from the beginning of the year to date,
and for a twelve month period.
oDOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six
month period. The index also provides the highs and lows for each of
the past five years.
oMORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on monthly reinvestment of
dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class of
Shares using charts, graphs and descriptions, compared to federally insured
bank products including certificates of deposit and time deposits and to
money market funds using the Lipper Analytical Services money market
instruments average.
Advertisements may quote performance information which does not reflect the
effect of a sales charge or contingent deferred sales charge, as
applicable.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended February 29, 1996, are
incorporated herein by reference to the Annual Report of the Fund dated
February 29, 1996 (File Nos. 33-13388 and 811-5114). A copy of this report
may be obtained without charge by contacting the Fund.
*Source: Investment Company Institute
APPENDIX
Description of Bond Ratings
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are
general and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of fixed income
securities in which the Fund invests should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase,
sell, or hold a security, because it does not take into account market
value or suitability for a particular investor. When a security has
received a rating from more than one service, each rating is evaluated
independently. Ratings are based on current information furnished by the
issuer or obtained by the rating services from other sources that they
consider reliable. Ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information, or for other
reasons.
Moody's Investors Service, Inc. Corporate Bond Rating Definitions
AAA-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt-edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Standard and Poor's Ratings Group Long Term Debt Rating Definitions
AAA-Debt rated `AAA'' has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Moody's Investors Service, Inc. Commercial Paper Rating Definitions
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
oLeading market positions in well established industries.
oHigh rates of return on funds employed.
oConservative capitalization structure with moderate reliance on debt
and ample asset protection.
oBroad margins in earning coverage of fixed financial charges and high
internal cash generation.
oWell-established access to a range of financial markets and assured
sources of alternate liquidity.
Standard & Poor's Ratings Group Commercial Paper Rating Definitions
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements incorporated by reference to
Registrant's Annual Report dated February 29, 1996. (File
Nos. 33-13388 and 811-5114).
(b) Exhibits:
(1) Copy of Amended and Restated Articles of Incorporation
of the Registrant (3.);
(i) Copy of Articles of Incorporation, as amended
(5.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) .........Copies of Specimen Certificates for
Class A Shares, Class B Shares, Class C Shares and
Class F Shares of the Registrant; +
(5) Conformed copy of Investment Advisory Contract of the
Registrant (5.);
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant, through and including Exhibits A
and B; (9.)
(ii) Conformed Copy of Exhibit C to Distributor's
Contract of the Registrant adding Class B Shares
to the existing Distributor's Contract; (9.)
(iii)..........The Registrant incorporates the
conformed copy of the specimen Mutual Funds Sales
and Service ...Agreement; Mutual Funds Service
Agreement; and Plan Trustee/ Mutual Funds Service
Agreement .....from Item 24(b)(6) of the Cash Trust
Series II .....Registration Statement filed with the
Commission on July 24, 1995. (File Number 33-
38550 and 811-6269);
(iv) Conformed Copy of Exhibit D to Distributor's
contract of the Registrant;+
(7) Not applicable;
(8) Conformed Copy of Custodian Contract of the
Registrant;(9.)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-2 filed April 16, 1987 (File Nos. 33-
13388 and 811-5114).
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed May 18, 1988 (File Nos. 33-13388
and 811-5114).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed February 21, 1990 (File Nos. 33-
13388 and 811-5114).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed May 24, 1995 (File Nos. 33-13388 and 811-5114).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 filed February 29, 1996 (File Nos. 33-13388 and 811-
5114).
(9) (i) Conformed Copy of the Agreement for Fund
Accounting Services, Administrative Services,
Transfer Agency Services, Shareholder
Recordkeeping, and Custody Services Procurement of
the Registrant; (11.)
(ii) The Registrant hereby incorporates the
conformed copy of the Shareholder Services Sub-
Contract between National Pensions Alliance, LTD.
and Federated Shareholder Services from Item 24(b)
(9)(ii) of Federated GNMA Trust Registration
Statement on Form N-1A, filed with the Commission
on March 25, 1996. (File Nos. 2-75670 and 811-
3375);
(iii) The response and exhibits described in Item
24(b)(6) are hereby incorporated by reference;
(iv) Conformed Copy of Shareholder Services Agreement
of the Registrant; (9.)
(10) Not applicable;
(11) Not applicable;
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Copy of Rule 12b-1 Plan of the Registrant, through
and including Exhibit A; (9.)
(ii) Copy of Exhibit B to the Rule 12b-1 Plan of the
Registrant adding Class B Shares to the existing
Rule 12b-1 Plan; (9.)
(iii) Copy of Exhibit C to the Rule 12b-1 Plan of
the Registrant; +
(16) Copy of Schedule for Computation of Fund Performance
Data; (9.)
(17) The Registrant incorporates the copy of the
Registrant's Financial Data Schedules from the Form
NSAR filed with the Commission on April 26, 1996. (File
Number 33-13388 and 811-5114);
(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item 24(b)(18)
of the World Investment Series, Inc. Registration
Statement on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed Copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of February 12, 1997
Shares of capital stock
($0.001 per Share par value)
Class A Shares 64,543
Class B Shares 7,857
Class C Shares 4,139
Class F Shares 44,611
Item 27. Indemnification: (1)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-2 filed April 16, 1987 (File Nos. 33-
13388 and 811-5114).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed May 24, 1995 (File Nos. 33-13388 and 811-5114).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed April 25, 1996 (File Nos. 33-13388 and 811-
5114).
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment adviser, see
the section entitled "Fund Information - Management of the Fund" in
Part A. The affiliations with the Registrant of five of the Officers
of the investment adviser are included in Part B of this Registration
Statement under "Federated Utility Fund, Inc. Management - Officers
and Directors."
The remaining Officers of the investment adviser are: William D.
Dawson, Henry A. Frantzen, J. Thomas Madden, Mark L. Mallon, Executive
Vice Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, Drew J. Collins, Jonathan C. Conley, Mark E.
Durbiano, J. Alan Minteer; Mary Jo Ochson, Sr. Vice Presidents; J.
Scott Albrecht, Joseph M. Balestrino, Randall S. Bauer, David F.
Belton, David A. Briggs, Kenneth J. Cody, Deborah A. Cunninghan,
Michael P. Donnelly, Linda A. Duessel, Kathleen M. Foody-Malus, Thomas
M. Franks, Edward C. Gonzales, Timothy E. Keefe, Stephen A. Keen, Mark
S. Kopinski, Jeff A. Kozemchak, Marian R. Marinack, Susan M. Nason,
Robert J. Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter,
James D. Roberge, Frank Semack, William F. Stotz, Sandra L. Weber;
Vice Presidents; Todd A. Abraham, Michael J. Donnelly, James E.
Grefenstette, Susan R. Hill, William R. Jamison, Aash Shah, Michael W.
Sirianni, Paige M. Wilhelm, Asst. Vice Presidents; Stephen A. Keen,
Secretary; Thomas R. Donahue, Treasurer; The business address of each
of the Officers of the investment adviser is Federated Investors
Tower, Pittsburgh, PA 15222-3779. These individuals are also officers
of a majority of the investment advisers to the Funds listed in Part B
of this Registration Statement.
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund
for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Biltmore Funds; The
Biltmore Municipal Funds; The Monitor Funds; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Tower Mutual
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; Wesmark Funds; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief President Federated
Investors Tower Executive Officer, Chiefand Director
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promugated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services
Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Passport Research, Ltd. Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust Co. P.O. Box 8600
("Custodian") Boston, MA 02266-8604
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED UTILITY FUND,
INC., certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485 (a) under
the Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 21st day of February, 1997.
FEDERATED UTILITY FUND, INC.
BY: /s/S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
February 21, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/S. Elliott Cohan
S. Elliott Cohan Attorney In Fact February 21, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President and Director
John W. Monigle* Executive Vice President
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Thomas J. Bigley* Director
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
John E. Murray, Jr. Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit 4(I) under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FEDERATED UTILITY FUND, INC.
(Class A Shares)
Number Shares
Account No. Alpha CodeIncorporated under the Laws See Reverse
Side For
of the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP314286 10 5
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED UTILITY FUND,
INC. (CLASS A SHARES) hereafter called the Company, transferable on the books of
the Company by the owner in person or by duly authorized attorney upon surrender
of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: (FUND NAME ALL CAPS)
Corporate Seal
1987
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FEDERATED UTILITY FUND, INC.
(Class B Shares)
Number Shares
Account No. Alpha CodeIncorporated under the Laws See Reverse
Side For
of the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP314286 20 4
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED UTILITY FUND,
INC. (CLASS B SHARES) hereafter called the Company, transferable on the books of
the Company by the owner in person or by duly authorized attorney upon surrender
of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: (FUND NAME ALL CAPS)
Corporate Seal
1987
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FEDERATED UTILITY FUND, INC.
(Class C Shares)
Number Shares
Account No. Alpha CodeIncorporated under the Laws See Reverse
Side For
of the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP314286 30 3
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED UTILITY FUND,
INC. (CLASS C SHARES) hereafter called the Company, transferable on the books of
the Company by the owner in person or by duly authorized attorney upon surrender
of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: (FUND NAME ALL CAPS)
Corporate Seal
1987
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
FEDERATED UTILITY FUND, INC.
(Class F Shares)
Number Shares
Account No. Alpha CodeIncorporated under the Laws See Reverse
Side For
of the State of Maryland Certain Definitions
THIS IS TO CERTIFY THAT is the owner of
CUSIP314286 40 2
Fully Paid and Non-Assessable Shares of Common Stock of FEDERATED UTILITY FUND,
INC. (CLASS F SHARES) hereafter called the Company, transferable on the books of
the Company by the owner in person or by duly authorized attorney upon surrender
of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to the
provisions of the Articles of Incorporation and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.
This Certificate is not valid unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name by its proper officers and to be sealed with its seal.
Dated: (FUND NAME ALL CAPS)
Corporate Seal
1987
Maryland
/s/David M. Taylor /s/ John F. Donahue
Treasurer Chairman
Countersigned: Federated Shareholder Services
Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)
Additional abbreviations may also be used though not in the above list.
The Company will furnish to any stockholder, on request and without charge,
a full statement of designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class which the corporation is authorized to issue.
For value received hereby sell, assign, and transfer unto
----------
Please insert social security or other
identifying number of assignee
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
shares
- ----------------------------------------------------------------------
of common stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
==========================================
to transfer the said shares on the books of the within named Company with full
power of substitution in the premises.
Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must correspond
with the name as written upon the face of the
certificate in every particular, without
alteration or enlargement or any change whatever.
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the
page.
Page Two
The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.
Exhibit 6(iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit D
to the
Distributor's Contract
LIBERTY UTILITY FUND, INC.
CLASS F SHARES
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated March 1, 1993, between Liberty
Utility Fund, Inc. and Federated Securities Corp. with respect to the
Class of shares set forth above.
1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the
above-listed Class ("Shares"). Pursuant to this appointment, FSC is
authorized to select a group of financial institutions ("Financial
Institutions") to sell Shares at the current offering price thereof
as described and set forth in the respective prospectuses of the
Corporation.
2. During the term of this Agreement, the Corporation will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of 0.25% of the average aggregate net asset value of the
Shares held during the month. For the month in which this Agreement
becomes effective or terminates, there shall be an appropriate
proration of any fee payable on the basis of the number of days that
the Agreement is in effect during the month.
3. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class'
expenses exceed such lower expense limitation as FSC may, by notice
to the Corporation, voluntarily declare to be effective.
4. FSC will enter into separate written agreements with various firms
to provide certain of the services set forth in Paragraph 1 herein.
FSC, in its sole discretion, may pay Financial Institutions a
periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time
by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Financial Institutions and the purpose for
such expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993 between Liberty Utility
Fund, Inc. and Federated Securities Corp., Liberty Utility Fund, Inc.
executes and delivers this Exhibit on behalf of the Liberty Utility
Fund, Inc., and with respect to the Class F Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of March 1, 1996.
ATTEST: LIBERTY UTILITY FUND, INC.
/s/ John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/Byron F. Bowman By:/s/Edward C. Gonzales
Secretary Executive Vice President
(SEAL)
Exhibit 15(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT C
to the
Distribution Plan
LIBERTY UTILITY FUND, INC.
CLASS F SHARES
This Distribution Plan is adopted by Liberty Utility Fund, Inc.
with respect to the Class of Shares of the portfolio of the
Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of 0.25% of
the average aggregate net asset value of the Class F Shares of Liberty
Utility Fund, Inc. held during the month.
Witness the due execution hereof this 1st day of March 1, 1996.
LIBERTY UTILITY FUND, INC.
By: /s/ Richard B. Fisher
President
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoint the Secretary and Assistant Secretary of FEDERATED UTILITY FUND,
INC. and the Assistant General Cousnel of Federated Investors, and each of
them, their true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed
with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, the Securities Exchange Act of 1934 and the Investment Company Act
of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other doucments in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents,
each of them, full power and authority to sign and perform each and every
act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and Director February 19, 1997
John F. Donahue (Chief Executive Officer)
/s/ Richard B. Fisher President and Director February 19, 1997
Richard B. Fisher
/s/ John W. McGonigle Treasurer, Executive Vice February 19, 1997
John W. McGonigle President and Secretary
(Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director February 19, 1997
Thomas G. Bigley
/s/John T. Conroy, Jr. Director February 19, 1997
John T. Conroy, Jr.
/s/William J. Copeland Director February 19, 1997
William J. Copeland
/s/James E. Dowd Director February 19, 1997
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Director February 19, 1997
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director February 19, 1997
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director February 19, 1997
Peter E. Madden
/s/ Gregor F. Meyer Director February 19, 1997
Gregor F. Meyer
/s/John E. Murray, Jr. Director February 19, 1997
John E. Murray, Jr.
/s/ Wesley W. Posvar Director February 19, 1997
Wesley W. Posvar
/s/ Marjorie P. Smuts Director February 19, 1997
Marjorie P. Smuts
Sworn to and subscribed before me this 19th day of February, 1997
/s/ Marie N.Hamm
Notary Republic
