1933 Act File No. 33-13388
1940 Act File No. 811-5114
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X__
Pre-Effective Amendment No. .................... ____
Post-Effective Amendment No. 20 .................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 23 ................................... X
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FEDERATED UTILITY FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(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) on _______________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a)(i)
_X_ on APRIL 29, 1998 pursuant to paragraph (a)(i) ___ 75 days after filing
pursuant to paragraph (a)(ii)
_ on pursuant to paragraph (a)(ii) of Rule 485.
- --- ---------------
If appropriate, check the following box:
_ _ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro Morin & Oshinsky, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
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) Summary of Fund Expenses.
Item 3. Condensed Financial
Information.................(1) Financial Highlights-Class
A Shares; (2) Financial Highlights-
Class B Shares; (3) Financial
Highlights-Class C Shares;
(4) Financial Highlights-Class F
Shares.
Item 4. General Description of
Registrant..................(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; (1-3)
Distribution of Shares; (4)
Distribution of
Class F Shares; (1-4) Administration
of the Fund; (1-4) Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities..................(1-4) Dividends and Distributions;
(1-4) Account and Share Information;
(1-4) Shareholder Information;
(1-4) Tax Information; (1-4) Federal
Income Tax; (1-4) State and Local
Taxes; (1-4) Other Classes of Shares.
Item 7. Purchase of Securities Being
Offered.....................(1-4) Net Asset Value; (1-4)
Investing in the Fund; (1-4)
Purchasing Shares; (1) Class A
Shares; (2) Class B Shares (3) Class
C Shares; (1-4) Systematic Investment
Program; (1-4) Confirmations and
Account Statements.
<PAGE>
Item 8. Redemption or Repurchase (1-4)
Redeeming or Exchanging Shares; (1-4)
Redeeming or Exchanging Shares Through
a Financial Institution; (1-4)
Redeeming or Exchanging Shares by
Telephone; (1-4) Redeeming or
Exchanging Shares by Mail; (1-4)
Requirements for Redemption; (1-4)
Contingent Deferred Sales Charge;
(1-4) Eliminating the Contingent
Deferred Sales Charge; (1-4)
Systematic Withdrawal Program; (1-4)
Accounts with Low Balances.
Item 9. Pending Legal Proceedings.....None.
<PAGE>
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; (1-4) About Federated Investors.
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) Contingent
Deferred Sales Charge; (1-4)
Elimination of the Contingent
Deferred Sales Charge-Class B Shares.
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) To be filed by Amendment.
<PAGE>
FEDERATED 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 30, 1998,
with the Securities and Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1998
<PAGE>
TABLE OF CONTENTS
<PAGE>
SUMMARY OF FUND EXPENSES-CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
<PAGE>
FINANCIAL HIGHLIGHTS-CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. Class A Shares, Class B Shares and Class C Shares of the Fund
("Shares") are designed to give institutions and individuals a convenient means
of accumulating an interest in a professionally managed, diversified portfolio
of comprised primarily of equity securities.
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.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The primary investment objective 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 objective, it endeavors
to do so by following the policies described in this prospectus. The investment
objective cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will seek to achieve its investment objective
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 ("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 Fund may invest up to 100% of
the value of its total assets as described above.
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 have
applied this limitation to the Fund's investments in 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.
CONVERTIBLE SECURITIES. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities, which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
REAL ESTATE INVESTMENT TRUSTS. The Fund may purchase interests in real estate
investment trusts. Risks associated with real estate investment trusts include
the fact that equity and mortgage real estate investment trusts are dependent
upon management skill and are not diversified, and are, therefore, subject to
the risk of financing single projects or unlimited number of projects. They are
also subject to heavy cash flow dependency, defaults by borrowers, and
self-liquidation. Additionally, equity real estate investment trusts may be
affected by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by the
quality of any credit extended. The investment adviser seeks to mitigate these
risks by selecting real estate investment trusts diversified by sector (shopping
malls, apartment building complexes, and health care facilities) and geographic
location.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities
and, as a matter of fundamental policy which may not be changed without
shareholder approval, will limit such investment to no more than 10% of its
total assets. This restriction does not apply to commercial paper issued under
Section 4(2) of the Securities Act of 1933. 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.
The Fund may invest in illiquid securities and, as a matter of fundamental
policy which may not be changed without shareholder approval, will limit such
investment to no more than 10% of its total assets. This limit applies to
securities purchased by the Fund which are deemed to be illiquid by the
Trustees, including certain restricted securities and repurchase agreements
providing for settlement in more than seven days after notice.
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.
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.
AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase American Depositary 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.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign
issuers which are freely traded on the United States securities exchanges or in
the over-the-counter market in the form of depositary receipts as well as
securities of foreign issuers that trade on foreign stock exchanges. Securities
of a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
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 in the utility
and other 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. (See "Risk Considerations in Developing
Countries.")
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. However,
utility companies in the United States are now faced with the possibility of
deregulation which would create competition between the companies. Utility
regulators also have permitted utilities to diversify outside of their original
geographic regions and their traditional lines of business. These opportunities
may permit certain utility companies to earn more than their traditional
regulated rates of return. Some companies, however, 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, foreign governments
may 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 cellular
telecommunications segment of this industry 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. Gas utility companies
in the past have been adversely affected by disruptions in the oil industry,
increased concentration, and increased competition. 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. Investment opportunities from consolidation and foreign
participation in this industry occurs.
REDUCING RISKS OF UTILITY SECURITIES. The Fund's adviser will use professional
portfolio management techniques, including credit research and diversification,
designed to reduce risk. 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.
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:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to
foreign companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o generally lower foreign stock market value;
o the likelihood that foreign securities may be less liquid or more
volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries; and
o political 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 increased 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:
o invest more than 25% of its total assets (valued at time of investment) in
securities of companies engaged principally in any one industry other than
the utilities industry, except that this restriction does not apply to cash
or cash items and securities issued or guaranteed by the United States
government or its agencies or instrumentalities;
o 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;
o 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;
o acquire more than 10% of the outstanding voting securities of any one
issuer (at the time of acquisition);
o 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;
o 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;
o 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;
o invest more than 5% of its net assets in warrants, not more than 2% of
which can be warrants not listed on recognized exchanges; or
o invest more than 15% of its 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 ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV 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.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
<PAGE>
INVESTING IN THE FUND
This prospectus offers three classes of Shares each with the characteristics
described below.
CLASS ACLASS BCLASS C
Minimum and Subsequent $1500/$100 $1500/$100 $1500/$100
Investment Amounts
Minimum and Subsequent $250/$100 $250/$100 $250/$100
Investment Amount
for Retirement Plans
Maximum Sales Charge 5.50%* None None
Maximum Contingent None 5.50 1.00%#
Deferred Sales
Charge**
Conversion Feature No Yes No * Class A Shares are sold at NAV, plus a sales
charge as follows:
SALES CHARGE DEALER
AS A PERCENTAGE OFCONCESSION AS
PUBLIC NETA PERCENTAGE OF
OFFERINGAMOUNTPUBLIC OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED 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%
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
The following contingent deferred sales charge schedule applies to Class B
Shares:
YEAR OF REDEMPTION CONTINGENT
DEFERRED
AFTER PURCHASE SALES CHARGE
First
5.50%
Second
4.75%
Third
4.00%
Fourth
3.00%
Fifth
2.00%
Sixth
1.00%
Seventh and thereafter
0.00%
Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase. See "Conversion of Class B Shares."
# The contingent deferred sales charge is assessed on Shares redeemed within one
year of their purchase date.
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in certain other funds advised and distributed by
affiliates of Federated Investors ("Federated Funds") may exchange their Shares
for Shares of the corresponding class of the Fund. The Fund reserves the right
to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a 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 intermediaries must be
received by the financial intermediary 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 intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.
The financial intermediary 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 intermediaries may be subject to reclaim by the
distributor for accounts transferred to financial intermediaries which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.
PURCHASING SHARES BY WIRE
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 02266-8600; Attention: EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); 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.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing 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).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary 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.
CLASS A SHARES
Class A Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS A SHARES PURCHASED:
n through financial intermediaries that do not receive sales charge dealer
concessions;
n by Federated Life Members; or
n through "wrap accounts" or similar programs under which clients pay a fee
for services.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
n purchasing in quantity and accumulating purchases at the levels in the
table under "Investing in the Fund";
n combining concurrent purchases of two or more funds;
n signing a letter of intent to purchase a specific quantity of shares within
13 months; or
n using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.
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 establishment of customer accounts and
purchases of Shares.
CLASS B SHARES
Class B Shares are sold at NAV. Under certain circumstances, a contingent
deferred sales charge will be assessed at the time of a redemption. Orders for
$250,000 or more of Class B Shares will automatically be invested in Class A
Shares.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares after eight full
years from the purchase date. Such conversion will be on the basis of the
relative NAVs per Share, without the imposition of any charges. 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.
CLASS C SHARES
Class C Shares are sold at NAV. A contingent deferred sales charge of 1.00% will
be charged on assets redeemed within the first full 12 months following
purchase.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Shares of the same
class of other Federated Funds on days on which the Fund computes its NAV.
Shares are redeemed at NAV less any applicable contingent deferred sales charge.
Exchanges are made at NAV. Shareholders who desire to automatically exchange
Shares, of a like class, in a pre-determined amount on a monthly, quarterly, or
annual basis may take advantage of a systematic exchange privilege. Information
on this privilege is available from the Fund or your financial intermediary.
Depending upon the circumstances, a capital gain or loss may be realized when
Shares are redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. 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.
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 or Exchanging Shares By Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, 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 must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: 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 of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally 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 or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
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.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having an NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
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. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class A Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge may be imposed on Class B and C
Shares.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. 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. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer
agent, no contingent deferred sales charge will be imposed on redemptions:
n following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder;
n 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;
n which are involuntary redemptions of shareholder accounts that do
not comply with the minimum balance requirements;
n which are qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program;
n which are reinvested in the Fund under the reinvestment privilege;
n of Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members
to the extent that no payments were advanced for purchases made by these
persons; and
n 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 intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the elimination of the contingent deferred sales
charge through a Systematic Withdrawal Program, or any of the above provisions,
contact your financial intermediary or the Fund. The Fund reserves the right to
discontinue or modify these provisions.
Shareholders will be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Net long-term capital gains realized by the Fund, if any,
will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
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.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.75% of the Fund's average daily net assets. 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.
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.
SUB-ADVISER. Under the terms of the Sub-Advisory Agreement between the
Adviser and Federated Global Research Corp. (the "Sub-Adviser"), the Sub-Adviser
will provide the Adviser such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by the Adviser.
SUB-ADVISORY FEES. For its services under the Sub-Advisory Agreement, the
Sub-Adviser receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which the Sub-Adviser
manages for the Fund. This fee is paid by the Adviser out of its resources and
is not an incremental Fund expense.
SUB-ADVISER'S BACKGROUND. Federated Global Research Corp., incorporated under in
Delaware on May 12, 1995, is a registered investment adviser under the
Investment Advisers Act of 1940.
The Sub-Adviser is a subsidiary of Federated Investors. All of the Class A
(voting) Shares of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Trustee of Federated Investors.
Passport Research, Ltd., Federated Global Research Corp., 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
$120 billion invested across more than 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1997, Federated Investors
is one of the largest mutual fund investment managers in the United States. With
more than 2,000 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.
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 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.
Steven J. Lehman will be named a portfolio manager of the Fund effective
July 1997. Mr. Lehman joined the Adviser in May 1997 as a Vice President. From
1985 to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD Investment Management
Company. Mr. Lehman is a Chartered Financial Analyst; he received his M.A. from
the University of Chicago.
Drew J. Collins has been a portfolio manager of the Fund since July 1997.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and Bleichroeder, Inc. from
1994 to 1995. He served as an Assistant Vice President/Portfolio Manager for
international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the Wharton School of the University of Pennsylvania.
Henry A. Frantzen has been a portfolio manager of the Fund since July 1997.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from 1992
until 1995.
The Fund, the Adviser, and the Sub-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 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.
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 0.75% 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 0.75% 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 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 0.50% 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 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
0.15% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
Directors may be removed by the Directors or 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.
As of February 8 , 1998, the following shareholder of record owned 25% or more
of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner &
Smith (as record owner holding Class C Shares for its clients), Jacksonville,
Florida, owned approximately 1,230,436 Class C Shares (29.95%) 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.
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
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 1-800-341-7400 or contact their financial institution.
<PAGE>
ADDRESSES
Federated Utility Fund, Inc.
Class A Shares Federated Investors Funds
Class B Shares 5800 Corporate Drive
Class C Shares Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Sub-Adviser
Federated Global Research Corp. 175 Water Street
New York, NY 10038-4965
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 Auditors
Ernst & Young LLP One Oxford Center
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 30, 1998
[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 (4/98)
<PAGE>
FEDERATED UTILITY FUND, INC.
CLASS F SHARES
PROSPECTUS
The Class F 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 30, 1998,
with the Securities and Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1998
<PAGE>
TABLE OF CONTENTS
<PAGE>
SUMMARY OF FUND EXPENSES-CLASS F SHARES
<PAGE>
FINANCIAL HIGHLIGHTS-CLASS F SHARES
<PAGE>
GENERAL INFORMATION
The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. Class F Shares of the Fund ("Shares") 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 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.
CALLING THE FUND
Call the Fund at 1-800-341-7400.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The primary investment objective 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 objective, it endeavors
to do so by following the policies described in this prospectus. The investment
objective cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund will seek to achieve its investment objective
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 ("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 Fund may invest up to 100% of
the value of its total assets as described above.
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 have
applied this limitation to the Fund's investments in 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.
CONVERTIBLE SECURITIES. Convertible securities include a spectrum of
securities which can be exchanged for or converted into common stock.
Convertible securities may include, but are not limited to: convertible bonds or
debentures; convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the convertible
security holder, such as DECS- (Dividend Enhanced Convertible Stock, or Debt
Exchangeable for Common Stock when issued as a debt security), LYONS- (Liquid
Yield Option Notes, which are corporate bonds that are purchased at prices below
par with no coupons and are convertible into stock), PERCS- Preferred Equity
Redemption Cumulative Stock (an equity issue that pays a high cash dividend, has
a cap price and mandatory conversion to common stock at maturity), and PRIDES-
(Preferred Redeemable Increased Dividend Securities, which are essentially the
same as DECS; the difference is little more than who initially underwrites the
issue).
Convertible securities are often rated below investment grade or not rated
because they fall below debt obligations and just above common equity in order
of preference or priority on the issuer's balance sheet. Hence, an issuer with
investment grade senior debt may issue convertible securities with ratings less
than investment grade or not rated. Convertible securities rated below
investment grade may be subject to some of the same risks as those inherent in
junk bonds. The Fund does not limit convertible securities by rating, and there
is no minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing and
holding, without limit, convertible securities rated below investment grade by
an NRSRO or in the Fund holding such securities where they have acquired a
rating below investment grade after the Fund has purchased it.
The Fund's investments in convertible securities will not be subject to the
quality rating limit on other securities in which the Fund invests.
REAL ESTATE INVESTMENT TRUSTS. The Fund may purchase interests in real estate
investment trusts. Risks associated with real estate investment trusts include
the fact that equity and mortgage real estate investment trusts are dependent
upon management skill and are not diversified, and are, therefore, subject to
the risk of financing single projects or unlimited number of projects. They are
also subject to heavy cash flow dependency, defaults by borrowers, and
self-liquidation. Additionally, equity real estate investment trusts may be
affected by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by the
quality of any credit extended. The investment adviser seeks to mitigate these
risks by selecting real estate investment trusts diversified by sector (shopping
malls, apartment building complexes, and health care facilities) and geographic
location.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities
and, as a matter of fundamental policy which may not be changed without
shareholder approval, will limit such investment to no more than 10% of its
total assets. This restriction does not apply to commercial paper issued under
Section 4(2) of the Securities Act of 1933. 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.
The Fund may invest in illiquid securities and, as a matter of fundamental
policy which may not be changed without shareholder approval, will limit such
investment to no more than 10% of its total assets. This limit applies to
securities purchased by the Fund which are deemed to be illiquid by the
Trustees, including certain restricted securities and repurchase agreements
providing for settlement in more than seven days after notice.
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.
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.
AMERICAN DEPOSITARY RECEIPTS. The Fund may purchase American Depositary 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.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign
issuers which are freely traded on the United States securities exchanges or in
the over-the-counter market in the form of depositary receipts as well as
securities of foreign issuers that trade on foreign stock exchanges. Securities
of a foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
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 in the
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. (See "Risk Considerations in Developing
Countries.")
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. However,
utility companies in the United States are now faced with the possibility of
deregulation which would create competition between the companies. Utility
regulators also have permitted utilities to diversify outside of their original
geographic regions and their traditional lines of business. These opportunities
may permit certain utility companies to earn more than their traditional
regulated rates of return. Some companies, however, 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, foreign governments
may 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 cellular
telecommunications segment of this industry 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. Gas utility companies
in the past have been adversely affected by disruptions in the oil industry,
increased concentration, and increased competition.
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. Investment opportunities from
consolidation and foreign participation in this industry occurs.
REDUCING RISKS OF UTILITY SECURITIES. The Fund's adviser will use professional
portfolio management techniques, including credit research and diversification
designed to reduce risk. 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.
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:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to foreign
companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o generally lower foreign stock market value;
o the likelihood that foreign securities may be less liquid or more volatile;
o foreign brokerage commissions may be higher;
o unreliable mail service between countries; and
o political 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 increased 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:
o invest more than 25% of its total assets (valued at time of investment)
in securities of companies engaged principally in any one industry other
than the utilities industry, except that this restriction does not apply
to cash or cash items and securities issued or guaranteed by the United
States government or its agencies or instrumentalities;
o 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;
o 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;
o acquire more than 10% of the outstanding voting securities of any one
issuer (at the time of acquisition);
o 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;
o 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;
o 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;
o invest more than 5% of its net assets in warrants, not more than 2% of
which can be warrants not listed on recognized exchanges; or
o invest more than 15% of its 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 ("NAV") per Share fluctuates and is based on the
market value of all securities and other assets of the Fund. The NAV 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.
All purchases, redemptions and exchanges are processed at the NAV next
determined after the request in proper form is received by the Fund. The NAV is
determined as of the close of trading on the New York Stock Exchange (normally
4:00 p.m., Eastern time) every day the New York Stock Exchange is open.
<PAGE>
INVESTING IN THE FUND
This prospectus offers Class F Shares with the characteristics described below.
CLASS F
Minimum and Subsequent Investment Amount $1500/$100
Minimum and Subsequent Investment Amount for $250/$100
Retirement Plans
Maximum Sales Charge 1.00%*
Maximum Sales Charge as a Percentage
of the Net Amount Invested 1.01%
Maximum Contingent Deferred Sales Charge** 1.00%**
* There is no sales charge for purchases of $1 million or more. In addition, no
sales charge is imposed for Shares purchased through certain entities or
programs. Please see the section entitled "Reducing or Eliminating the Sales
Charge."
** Computed on the lesser of the NAV of the redeemed Shares at the time of
purchase or the NAV of the redeemed Shares at the time of redemption.
The following contingent deferred sales charge schedule applies to Class F
Shares:
CONTINGENT DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
Up to $1,999,999 Four Years or less 1.00%
$2,000,000 to $4,999,999 Two Years or less 0.50%
$5,000,000 or more One Year or less 0.25%
PURCHASING SHARES
Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial intermediary (such as a bank or broker/dealer) or by sending a wire or
check directly to the Fund. Financial intermediaries may impose different
minimum investment requirements on their customers. An account must be
established with a financial intermediary or by completing, signing, and
returning the new account form available from the Fund before Shares can be
purchased. Shareholders in Class F Shares of certain other funds advised and
distributed by affiliates of Federated Investors ("Federated Funds") may
exchange their Shares for Class F Shares of the Fund. The Fund reserves the
right to reject any purchase or exchange request.
In connection with any sale, Federated Securities Corp. may, from time to time,
offer certain items of nominal value to any shareholder or investor.
PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY
Orders placed through a financial intermediary are considered received when the
Fund is notified of the purchase order or when payment is converted into federal
funds. Purchase orders through a 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 intermediaries must be
received by the financial intermediary 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 intermediary's responsibility to transmit orders promptly.
Financial intermediaries may charge fees for their services.
The financial intermediary which maintains investor accounts in Class F 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 intermediaries may be subject to reclaim by the distributor for
accounts transferred to financial intermediaries which do not maintain investor
accounts on a fully disclosed basis and do not account for share ownership
periods.
PURCHASING SHARES BY WIRE
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 02266-8600; Attention: EDGEWIRE; For Credit
to: (Fund Name) (Fund Class); (Fund Number--this number can be found on the
account statement or by contacting the Fund); 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.
PURCHASING SHARES BY CHECK
Shares may be purchased by mailing 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).
SYSTEMATIC INVESTMENT PROGRAM
Under this program, funds in a minimum amount of $50 may be automatically
withdrawn periodically from the shareholder's checking account at an Automated
Clearing House ("ACH") member and invested in the Fund. Shareholders should
contact their financial intermediary 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.
REDUCING OR ELIMINATING THE SALES CHARGE
Class F Shares are sold at NAV, plus a sales charge. However:
NO SALES CHARGE IS IMPOSED FOR CLASS F SHARES PURCHASED:
n through bank trust departments or investment advisers registered under the
Investment Advisers Act of 1940 purchasing on behalf of their clients;
n by sales representatives, Directors, and employees of the Fund, Federated
Advisers, Federated Securities Corp. or their affiliates and their
immediate family members;
n by any investment dealer who has a sales agreement with Federated
Securities Corp. and their immediate family members, or by 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; or
n by shareholders of record in the Fortress Utility Fund on September 30,
1989.
IN ADDITION, THE SALES CHARGE CAN BE REDUCED OR ELIMINATED BY:
n purchasing in quantity and accumulating purchases;
n combining concurrent purchases of two or more funds;
n signing a letter of intent to purchase a specific quantity of shares within
13 months; or
n using the reinvestment privilege.
Consult a financial intermediary or Federated Securities Corp. for details on
these programs. In order to eliminate the sales charge or receive sales charge
reductions, Federated Securities Corp. must be notified by the shareholder in
writing or by a financial intermediary at the time of purchase.
DEALER CONCESSION
For sales of Shares, a dealer will normally receive up to 100% 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. 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 establishment of customer accounts and
purchases of Shares.
REDEEMING AND EXCHANGING SHARES
Shares of the Fund may be redeemed for cash or exchanged for Class F Shares of
other Federated Funds on days on which the Fund computes its NAV. Shares are
redeemed at NAV less any applicable contingent deferred sales charge. Exchanges
are made at NAV. Shareholders who desire to automatically exchange Shares, of a
like Share class, in a pre-determined amount on a monthly, quarterly, or annual
basis may take advantage of a systematic exchange privilege. Information on this
privilege is available from the Fund or your financial intermediary. Depending
upon the circumstances, a capital gain or loss may be realized when Shares are
redeemed or exchanged.
REDEEMING OR EXCHANGING SHARES THROUGH A FINANCIAL INTERMEDIARY
Shares of the Fund may be redeemed or exchanged by contacting your financial
intermediary before 4:00 p.m. (Eastern time). In order for these transactions to
be processed at that day's NAV, financial intermediaries (other than
broker/dealers) must transmit the request to the Fund before 4:00 p.m. (Eastern
time), while broker/dealers must transmit the request to the Fund before 5:00
p.m. (Eastern time). The financial intermediary is responsible for promptly
submitting transaction requests and providing proper written instructions.
Customary fees and commissions may be charged by the financial intermediary for
this service. Appropriate authorization forms for these transactions must be on
file with the Fund.
REDEEMING OR EXCHANGING SHARES BY TELEPHONE
Shares acquired directly from the Fund may be redeemed in any amount, or
exchanged, by calling 1-800-341-7400. Appropriate authorization forms for these
transactions must be on file with the Fund. Shares held in certificate form must
first be returned to the Fund as described in the instructions under "Redeeming
or Exchanging Shares by Mail." Redemption proceeds will either be mailed in the
form of a check to the shareholder's address of record or wire-transferred to
the shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. 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.
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 or Exchanging Shares By Mail" should be considered. The
telephone transaction privilege may be modified or terminated at any time.
Shareholders would be promptly notified.
REDEEMING OR EXCHANGING SHARES BY MAIL
Shares may be redeemed in any amount, or exchanged, 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 must
accompany the written request. It is recommended that certificates be sent
unendorsed by registered or certified mail.
All written requests should state: 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 of the transaction. An exchange
request should also state the name of the Fund into which the exchange is to be
made. All owners of the account must sign the request exactly as the Shares are
registered. A check for redemption proceeds is normally 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 or exchange request is processed.
REQUIREMENTS FOR REDEMPTION
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.
REQUIREMENTS FOR EXCHANGE
Shareholders must exchange Shares having a NAV equal to the minimum investment
requirements of the fund into which the exchange is being made. Contact your
financial intermediary directly or the Fund for free information on and
prospectuses for the Federated Funds into which your Shares may be exchanged.
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made.
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. Signature guarantees will be required to exchange
between fund accounts not having identical shareholder registrations. The
exchange privilege may be modified or terminated at any time. Shareholders will
be notified of the modification or termination of the exchange privilege.
SYSTEMATIC WITHDRAWAL PROGRAM
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder of not less than $100. To be
eligible to participate in this program, a shareholder must have an account
value of at least $10,000, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through his financial intermediary or by calling the Fund.
Because participation in this program may reduce, and eventually deplete, the
shareholder's investment in the Fund, payments under this program should not be
considered as yield or income. It is not advisable for shareholders to continue
to purchase Class F Shares subject to a sales charge while participating in this
program. A contingent deferred sales charge will be imposed on Shares redeemed
through this program within four years of their purchase dates.
CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. 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. The contingent deferred sales charge will not be imposed with respect to
Shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In determining the applicability of the contingent
deferred sales charge, the required holding period for your new Shares received
through an exchange will include the period for which your original Shares were
held.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Upon written notification to Federated Securities Corp. or the transfer agent,
no contingent deferred sales charge will be imposed on redemptions:
n following the death or disability, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, of the last surviving shareholder; n
representing a total or partial distribution from an Individual Retirement
Account, Keogh Plan, or a custodial account to a shareholder who has
attained the age of 70 1/2; n representing a total or partial distribution
from a qualified plan, other than an Individual Retirement Account, Keogh
Plan, or a custodial account following retirement; n which are involuntary
redemptions of shareholder accounts that do not comply with the minimum
balance requirements; n which are reinvested in the Fund under the
reinvestment privilege;
n of Shares held by Directors, employees and sales representatives of the
Fund, the distributor, or affiliates of the Fund or distributor, employees
of any financial intermediary that sells Shares of the Fund pursuant to a
sales agreement with the distributor, and their immediate family members to
the extent that no payments were advanced for purchases made by these
persons; and
n 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 intermediary, to the extent that no payments were
advanced for purchases made through such entities.
For more information regarding the contingent deferred sales charge or any of
the above provisions, contact your financial intermediary or the Fund. The Fund
reserves the right to discontinue or modify these provisions. Shareholders will
be notified of such action.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Fund will not issue share certificates.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Net long-term capital gains realized by the Fund, if any,
will be distributed at least once every twelve months. Dividends and
distributions are automatically reinvested in additional Shares of the Fund on
payment dates at the ex-dividend date NAV without a sales charge, unless
shareholders request cash payments on the new account form or by contacting the
transfer agent.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
close an account by redeeming all Shares and paying the proceeds to the
shareholder if the account balance falls below the applicable minimum investment
amount. Retirement plan accounts and accounts where the balance falls below the
minimum due to NAV changes will not be closed in this manner. Before an account
is closed, the shareholder will be notified and allowed 30 days to purchase
additional Shares to meet the minimum.
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 0.75% of the Fund's average daily net assets. 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.
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.
SUB-ADVISER. Under the terms of the Sub-Advisory Agreement between the
Adviser and Federated Global Research Corp. (the "Sub-Adviser"), the Sub-Adviser
will provide the Adviser such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by the Adviser.
SUB-ADVISORY FEES. For its services under the Sub-Advisory Agreement, the
Sub-Adviser receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which the Sub-Adviser
manages for the Fund. This fee is paid by the Adviser out of its resources and
is not an incremental Fund expense.
SUB-ADVISER'S BACKGROUND. Federated Global Research Corp., incorporated in
Delaware on May 12, 1995, is a registered investment adviser under the
Investment Advisers Act of 1940.
The Sub-Adviser is a subsidiary of Federated Investors. All of the Class A
(voting) Shares of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is President
and Trustee of Federated Investors.
Passport Research, Ltd., Federated Global Research Corp., 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
$120 billion invested across more than 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1997, Federated Investors
is one of the largest mutual fund investment managers in the United States. With
more than 2,000 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.
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 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.
Steven J. Lehman will be named a portfolio manager of the Fund effective
July 1997. Mr. Lehman joined the Adviser in May 1997 as a Vice President. From
1985 to May 1997, Mr. Lehman served as a Portfolio Manager, then Vice
President/Senior Portfolio Manager, at First Chicago NBD Investment Management
Company. Mr. Lehman is a Chartered Financial Analyst; he received his M.A. from
the University of Chicago.
Drew J. Collins has been a portfolio manager of the Fund since July 1997.
Mr. Collins joined Federated Investors in 1995 as a Senior Vice President of the
Fund's investment adviser. Mr. Collins served as Vice President/Portfolio
Manager of international equity portfolios at Arnold and Bleichroeder, Inc. from
1994 to 1995. He served as an Assistant Vice President/Portfolio Manager for
international equities at the College Retirement Equities Fund from 1986 to
1994. Mr. Collins is a Chartered Financial Analyst and received his M.B.A. in
finance from the Wharton School of the University of Pennsylvania.
Henry A. Frantzen has been a portfolio manager of the Fund since July 1997.
Mr. Frantzen joined Federated Investors in 1995 as an Executive Vice President
of the Fund's investment adviser. Mr. Frantzen served as Chief Investment
Officer of international equities at Brown Brothers Harriman & Co. from 1992
until 1995.
The Fund, the Adviser, and the Sub-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.
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 0.25% of the average
daily net asset value of Class F Shares, computed at an annual rate, to obtain
certain personal services for shareholders and to provide the maintenance of
shareholder accounts ("shareholder services"). From time to time and for such
periods as deemed appropriate, the amount stated may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services will
either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The schedule
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, 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, 0.50% of the
offering price on purchases of $2,000,000 to $4,999,999, and 0.25% 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, with respect to Class F Shares, in addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of 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 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
.0150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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.
SHAREHOLDER INFORMATION
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only Shares of that portfolio or class are
entitled to vote.
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.
As of February 8, 1998, the following shareholder of record owned 25% or more of
the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), Jacksonville, Florida,
owned approximately 1,230,436 Class C Shares (29.95%) 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.
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
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 1-800-341-7400 or contact their
financial institution.
<PAGE>
ADDRESSES
Federated Utility Fund, Inc.
Class F Shares Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Passport Research, Ltd. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Sub-Adviser
Federated Global Research Corp. 175 Water Street
New York, NY 10038-4965
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 Auditors
Ernst & Young LLP One Oxford Center
Pittsburgh, PA 15219
<PAGE>
Federated Utility
Fund, Inc.
Class F Shares
Prospectus
An Open-End, Diversified
Management Investment Company
April 30, 1998
[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 (4/98)
FEDERATED 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 30, 1998. 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
1-800-341-7400.
FEDERATED UTILITY FUND, INC.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000
Statement dated April 30, 1998
[GRAPHIC OMITTED]
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 (4/98)
<PAGE>
TABLE OF CONTENTS
I
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVES AND POLICIES 1
Temporary Investments 1
Units of Master Limited Partnerships 2
Convertible Securities 2
Repurchase Agreements 2
Lending of Portfolio Securities 2
Restricted Securities 2
When-Issued and Delayed Delivery Transactions 3
Reverse Repurchase Agreements3
Covered Call Options 3
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3
FEDERATED UTILITY FUND, INC. MANAGEMENT 6
Fund Ownership 10
Directors Compensation 10
INVESTMENT ADVISORY SERVICES 11
Adviser to the Fund 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 12
Fund Administration 12
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Auditors 12
PURCHASING SHARES 12
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT 12
Conversion to Federal Funds 13
Purchases by Sales Representatives, Fund Directors, and Employees 13
Exchanging Securities for Fund Shares 13
DETERMINING NET ASSET VALUE 14
Determining Market Value of Securities 14
EXCHANGE PRIVILEGE 14
Reduced Sales Charge 14
Requirements for Exchange 14
Tax Consequences 15
Making an Exchange 15
REDEEMING SHARES 15
Redemption in Kind 15
Elimination of the Contingent Deferred Sales
Charge 16
MASSACHUSETTS PARTNERSHIP LAW16
TAX STATUS 16
The Fund's Tax Status 16
Shareholders' Tax Status 16
TOTAL RETURN 16
YIELD 17
PERFORMANCE COMPARISONS 17
Economic and Market Information 18
ABOUT FEDERATED INVESTORS 18
Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank Broker/Dealer Subsidiaries 19
FINANCIAL STATEMENTS 19
APPENDIX 20
<PAGE>
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 objective by investing in a diversified portfolio
comprised primarily of equity securities. The investment objective 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:
o instruments of domestic and foreign banks and savings associations 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
o prime commercial paper (rated A-1 by Standard and Poor's, Prime-1 by
Moody's Investors Service, Inc., or F-1 by Fitch IBCA, Inc.).
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
o Federal Home Loan Banks;
o Farmers Home Administration; and
o Federal National Mortgage Association.
<PAGE>
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
DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common stock at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common stock up to the first call
price. They are effectively capped at that point unless the common stock rises
above a second price point, at which time they participate with unlimited upside
potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is limited to
a predetermined level. PERCS are less risky and less volatile than the
underlying common stock because their superior income mitigates declines when
the common stock falls, while the cap price limits gains when the common stock
rises.
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 Directors consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of potential buyers;
o dealer undertakings to make a market in the security; and
o the 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 28,
1998 and 1997, the portfolio turnover rates were __% and 44%,respectively.
<PAGE>
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.
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.
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).
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.
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, Executive Vice President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
<PAGE>
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
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, 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.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
<PAGE>
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; 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; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President
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.
<PAGE>
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 and Director 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 , Secretary and Treasurer
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; 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; 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 Core
Trust; 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; 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 Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
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; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.
As of February 8,, 1998, the following shareholder of record owned 5% or more of
the outstanding Class A Shares of the Fund: Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class A Shares for its clients), Jacksonville, Florida,
owned approximately 2,919,591 Shares (5.24%).
As of February 8, 1998, the following shareholder of record owned 5% or more of
the outstanding Class B Shares of the Fund:Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class B Shares for its clients), Jacksonville, Florida,
owned approximately 699,375 Shares (8.25%).
As of February 8, 1998, the following shareholder of record owned 5% or more of
the outstanding Class C Shares of the Fund:Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class C Shares for its clients), Jacksonville, Florida,
owned approximately 1,230,436 Class C Shares (29.95%).
As of February 8, 1998, the following shareholder of record owned 5% or more of
the outstanding Class F Shares of the Fund:Merrill Lynch Pierce Fenner & Smith
(as record owner holding Class F Shares for its clients), Jacksonville, Florida,
owned approximately 9,884,911 Shares (22.14%).
<PAGE>
DIRECTORS COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +
<S> <C> <C>
John F. Donahue $0 $0 for the Fund and
Chairman and Director 56 other investment companies in the Fund Complex
Thomas G. Bigley $____ $111,222 for the Fund and
Director 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $____ $122,362 for the Fund and
Director 56 other investment companies in the Fund Complex
William J. Copeland $____ $122,362 for the Fund and
Director 56 other investment companies in the Fund Complex
James E. Dowd $____ $122,362 for the Fund and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $____ $111,222 for the Fund and
Director 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $____ $122,362 for the Fund and
Director 56 other investment companies in the Fund Complex
Peter E. Madden $____ $122,362 for the Fund and
Director 56 other investment companies in the Fund Complex
John E. Murray, Jr., $____ $111,222 for the Fund and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $____ $111,222 for the Fund and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $____ $111,222 for the Fund and
Director 56 other investment companies in the Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended February 28, 1998.
+The information is provided for the last calendar year.
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 28, 1998 and 1997 and February 29, 1996, the Adviser earned
$_____, $10,761,268, and $6,662,590, respectively, of which $_____, $1,691,837,
and $1,225,393, respectively, were voluntarily waived.
SUB-ADVISER TO THE FUND
The Fund's sub-adviser is Federated Global Research Corp. (the
"Sub-Adviser").
SUB-ADVISORY FEES
For its sub-advisory services, the Sub-Adviser receives an allocable
portion of the Fund's advisory fee as described in the prospectus.
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 28, 1998 and 1997 and February 29, 1996,
the Fund paid $_____, $1,371,490, and $1,678,849, 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. For purposes of this Statement of
Additional Information, Federated Services Company and Federated Administrative
Servicesmay hereinafter collectively be referred to as the "Administrators". For
the fiscal years ended February 28, 1998 and 1997 and February 29, 1996, the
Administrators earned $_____, $1,084,280, and $672,236, respectively.
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, if applicable) on
days the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the respective prospectuses under "Investing
in the Fund" and "Purchasing Shares." For further information on any of the
programs listed below, please contact your financial intermediary or Federated
Securities Corp.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES
As described in the prospectuses, larger purchases of the same Share class
reduce or eliminate the sales charge paid. For example, the Fund will combine
all Class A Shares purchases 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. This combined purchase option is available within Class F
Shares as well. 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 into the same Share class 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%.
In addition, the Fund will also combine purchases for the purpose of reducing
the contingent deferred sales charge imposed on Class F Share redemptions. For
example, if a shareholder already owns Class F 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 0.50% of those additional Class F Shares.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial intermediary at the
time the purchase is made that Class A Shares or Class F Shares are already
owned or that purchases are being combined. The Fund will reduce or eliminate
the sales charge after it confirms the purchases.
CONCURRENT PURCHASES
Shareholders have the privilege of combining concurrent purchases of the same
Share class of two or more funds in the Federated Complex in calculating the
applicable sales charge.
To receive a sales charge reduction or elimination, Federated Securities Corp.
must be notified by the shareholder in writing or by his financial intermediary
at the time the concurrent purchases are made. The Fund will reduce or eliminate
the sales charge after it confirms the purchases.
LETTER OF INTENT
A shareholder can sign a letter of intent committing to purchase a certain
amount of the same Share class within a 13 month period in order to combine such
purchases in calculating the applicable sales charge. The Fund's custodian will
hold Shares in escrow equal to the maximum applicable sales charge. If the
shareholder completes the commitment, the escrowed Shares will be released to
their account. If the commitment is not completed within 13 months, the
custodian will redeem an appropriate number of escrowed Shares to pay for the
applicable sales charge.
The letter of intent for Class F Shares 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.
While this letter of intent will not obligate the shareholder to purchase Class
A Shares or Class F 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 or Class F Shares of any Federated Funds, excluding money market
accounts, will be aggregated to provide a purchase credit towards fulfillment of
the letter of intent. The letter may be dated as of a prior date to include any
purchase made within the past 90 days. Prior trade prices will not be adjusted.
REINVESTMENT PRIVILEGE
The reinvestment privilege is available for all Shares of the Fund within the
same Share Class.
Class A and Class F shareholders who redeem from the Fund may reinvest the
redemption proceeds back into the same Share class at the next determined net
asset value without any sales charge. The original Shares must have been subject
to a sales charge and the reinvestment must be within 120 days.
Similarly, Class C and Class F shareholders who redeem may reinvest their
redemption proceeds in the same Share class within 120 days. Class B Shares also
may be reinvested within 120 days of redemption, although such reinvestment will
be made into Class A Shares. Shareholders would not be entitled to a
reimbursement of the contingent deferred sales charge if paid at the time of
redemption on any Share class. However, reinvested Shares would not be subject
to a contingent deferred sales charge, if otherwise applicable, upon later
redemption.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
15th of the month eight full years from the purchase date and will no longer be
subject to a fee under the distribution plan. 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 a 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.
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.
<PAGE>
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 28, 1998, the Fund's Class B Shares and
Class C Shares incurred $_____ and $_____, respectively, in distribution
services fees, none of which were waived. In addition, for the fiscal year ended
February 28, 1998, the Class A Shares, Class B Shares, Class C Shares and Class
F Shares, paid shareholder services fees in the amount of $_____, $_____, $_____
and $_____, respectively, of which $_____, $_____, $_____, and $_____,
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 Shareholder 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
The following individuals and their immediate family members may buy Class A
Shares and Class F Shares at net asset value without a sales charge:
o Directors, employees, and sales representatives of the Fund, Passport
Research, Ltd. and Federated Securities Corp. and its affiliates;
o Federated Life Members (Class A Shares only);
o any associated person of an investment dealer who has a sales agreement
with Federated Securities Corp.; and
o trusts, pensions, or profit-sharing plans for these individuals.
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
The Fund's net asset value per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The net asset value for
each class of Shares may differ due to the variance in daily net income realized
by each class.
Net asset value is not determined on (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net asset value
might be materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o according to the last sale price on a national securities exchange,
if available;
o in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices and for bonds and
other fixed income securities, as determined by an independent pricing
service; or
o for short-term obligations according to the prices as furnished by an
independent pricing service or for short-term obligations with remaining
maturities of 60 days or less at the time of purchase, at amortized cost
or at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
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 "Redeeming and Exchanging 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.
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 Corporation has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Corporation 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.
<PAGE>
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; (3) Shares held for fewer than six years with respect to Class B
Shares and for less than one full year from the date of purchase with respect to
Class C Shares on a first-in, first-out basis.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
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 Fund Shares, and has an account 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. 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 annual valuation date. Redemptions on
a qualifying Systematic Withdrawal Program can be made at a rate of 1.00%
monthly, 3.00% quarterly, or 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 are 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 accounts will be not be aggregated.
Any Shares purchased prior to the termination of this program would have the
contingent deferred sales charge eliminated as provided in the Fund's
prospectus at the time of the purchase of the Shares.
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. 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.
<PAGE>
TOTAL RETURN
The Fund's average annual total returns based on offering price for the
following periods ended February 28, 1998, were:
DATE OF INITIAL
PUBLIC
SHARE CLASS INVESTMENT ONE-YEAR FIVE-YEARSTEN-YEARSSINCE INCEPTION
Class A 6/5/87 __% __% __% --- %
Class B 10/12/94 __% -- -- ---%
Class C 4/30/93 __% -- -- ---%
Class F 6/1/96 __% __ __ ---%
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 a
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 the thirty-day period ended February 28, 1998, were:
SHARE CLASS YIELD
Class A ___%
Class B ___%
Class C ___%
Class F ___%
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 twelve-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:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's or a class of Shares' expenses; and
o various 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:
o LIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one month, three month, one year, and five year periods
which assume the reinvestment of all capital gains distributions and
income dividends.
o DOW JONES INDUSTRIAL AVERAGE (`DJIA') represents share prices of
selected blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator
for the stock market as a whole.
o STANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500 COMMON
STOCKS, a composite index of common stocks in industry, transportation,
financial, and public utility companies, compares total returns of funds
whose portfolios are invested primarily in common stocks. In addition,
the Standard & Poor's index assumes reinvestment of all dividends paid
by stocks listed on its index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated in Standard
& Poor's figures.
o STANDARD & POOR'S RATINGS GROUP UTILITY INDEX is an unmanaged index of
common stocks from forty different utilities. This index indicates daily
changes in the price of the stocks. The index also provides figures for
changes in price from the beginning of the year to date, and for a
twelve month period.
o DOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six month
period. The index also provides the highs and lows for each of the past
five years.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings are
effective for two weeks.
Advertisements and other sales literature for 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
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. These traders handle trillions of dollars
in annual trading volume.
In the equity sector, Federated Investors has more than 27 years' experience.
As of December 31, 1997, Federated managed 29 equity funds totaling
approximately $11.7 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system that was
developed in the 1970s.
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 and global portfolios.
<PAGE>
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $4.4 trillion to the more than 6,700 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 approximately 900
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.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
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 Timothy C.
Pillion, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
FINANCIAL STATEMENTS
(TO BE FILED BY AMENDMENT)
*Source: Investment Company Institute
<PAGE>
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 LONG TERM DEBT RATING DEFINITIONS
AAA-Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
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.
<PAGE>
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:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
STANDARD & POOR'S 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: To be filed by Amendment.
(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; (12.) (5) (i) Conformed Copy of Investment
Advisory Contract of the Registrant (5.);
(ii) Conformed Copy of Sub-Advisory Contract of the
Registrant; +
(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; (12.) (v)
Conformed Copy of Distributor's Contract (Class B
Shares); +
(7) Not applicable;
(8) (i) Conformed Copy of Custodian Contract of the
Registrant;(9.)
(ii) Conformed Copy of Domestic Custodian Fee
Schedule; +
(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 response and exhibits described in Item
24(b)(6) are hereby incorporated by reference;
- -------------------
+ 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).
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).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed February 21, 1997 (File Nos. 33-13388 and 811-5114).
<PAGE>
(iii) Conformed Copy of Amended and Restated Shareholder
Services Agreement of the Registrant; + (iv) Conformed
Copy of Principal Shareholder Services Agreement (Class
B Shares); + (v) Conformed Copy of Shareholder Services
Agreement (Class B Shares); +
(10) Not applicable; (11) Not applicable; (12) Not applicable;
(13) Not applicable; (14) Not applicable;
(15) (i) Conformed Copy of Rule 12b-1 Plan of the
Registrant, through and including Exhibit A; (9.)
(ii) Conformed 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) Conformed Copy of Exhibit C
to the Rule 12b-1 Plan of the Registrant; (12.) (iv)
Conformed copy of Exhibit 1 to the 12b-1 Plan (Class B
Shares) of the Registrant; +
(16) Copy of Schedule for Computation of Fund Performance
Data; (9.)
(17) Copy of Financial Data Schedules; (13.)
(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;(12.)
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 8, 1998
-------------- ----------------------
Shares of capital stock
($0.001 per Share par value)
Class A Shares 56,667
Class B Shares 8,429
Class C Shares 3,526
Class F Shares 30,646
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). 12. Response is
incorporated by reference to Registrant's Post-Effective Amendment No. 17 filed
February 21, 1997 (File Nos. 33-13388 and 811-5114). 13. Response is
incorporated by reference to Registrant's Post-Effective Amendment No. 19 filed
April 25, 1997 (File Nos. 33-13388 and 811-5114).
<PAGE>
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser, see
the section entitled "FUND INFORMATION"in Part A. The affiliations with
the Registrant of four of the Trustees and one of the Officers of the
investment adviser are included in Part B of this Registration
Statement under "FEDERATED UTILITY FUND, INC. MANAGEMENT." The
remaining Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation is:
Mark D. Olson (Partner, Wilson, Halbrook & Bayard), 107 W. Market
Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: J. Scott Albrecht
Joseph M. Balestrino
Randall S. Bauer
David A. Briggs
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Sandra L. McInerney
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Todd A. Abraham
Stefanie L. Bachhuber
Arthur J. Barry
Micheal W. Casey
Robert E. Cauley
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Joseph M. Natoli
Keith J. Sabol
Michael W. Sirianni
Gregg S. Tenser
Secretary: Stephen A. Keen
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
111 Corcoran 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 Core Trust; 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 Obligations Trust II; 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 Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal 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.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
Richard B. Fisher Director, Chairman, Chief President and
Federated Investors Tower Executive Officer, Chief Director
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive 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.
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger 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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Teresa M. Antoszyk 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
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
William C. Doyle 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
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
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel 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
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
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
Richard A. Recker 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
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck 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
John A. Staley 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
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
John F. Wallin 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth C. Dell 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
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 P.O. Box 8600
("Transfer Agent and Dividend Boston, MA 02266-8600
Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Passport Research, Ltd. Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
Federated Global Research Corp. 175 Water Street
("Sub-Adviser") New York, NY 10038-4965
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED UTILITY FUND, INC.,
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 20th day of February, 1998.
FEDERATED UTILITY FUND, INC.
BY: /s/J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
February 20, 1998
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/J. Crilley Kelly
J. Crilley Kelly Attorney In Fact February 20, 1998
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. McGonigle* 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 5(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FEDERATED UTILITY FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Passport Research, Ltd., a Pennsylvania
limited partnership having its principal place of business in Pittsburgh,
Pennsylvania (hereinafter referred to as "Adviser") and Federated Global
Research Corp., a Delaware corporation having its principal place of business in
New York, New York (hereinfter referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound hereby agree as
follows:
1. Sub-Adviser hereby agrees to furnish to Adviser in its capacity as
investment adviser to Federated Utility Fund, Inc. (the "Fund"), such investment
advice, statistical and other factual information, as may from time to time be
reasonably requested by Adviser for the Fund which may be offered in one or more
classes of shares ("Classes").
2. For its services under this Agreement, Sub-Adviser shall receive from
Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in the exhibits
hereto. In the event that the fee due from the Fund to the Adviser is reduced in
order to meet expense limitations imposed on the Fund by state securities laws
or regulations, the Sub-Advisory Fee shall be reduced by one-half of said
reduction in the fee due from the Fund to the Adviser.
Notwithstanding any other provision of this Agreement, the Sub-Adviser may
from time to time and for such periods as it deems appropriate, reduce its
compensation (and, if appropriate, assume expenses of the Fund or Class of the
Fund) to the extent that the Fund's expenses exceed such lower expense
limitation as the Sub-Adviser may, by notice to the Fund, voluntarily declare to
be effective.
3. This Agreement shall begin for the Fund on the date that the parties
execute an exhibit to this Agreement relating to such Fund and shall continue in
effect for the Fund for two years from the date of its execution and from year
to year thereafter, subject to the provisions for termination and all of the
other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Directors of the Fund, including a majority of the Directors who are not parties
to this Agreement or interested persons of any such party (other than as
Directors of the Fund) cast in person at a meeting called for that purpose; and
(b) Adviser shall not have notified the Fund in writing at least sixty (60) days
prior to the anniversary date of this Agreement in any year thereafter that it
does not desire such continuation with respect to the Fund.
4. Notwithstanding any provision in this Agreement, it may be terminated
at any time without the payment of any penalty: (a) by the Directors of the Fund
or by a vote of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Act) of the Fund on sixty (60) days' written notice to
Sub-Adviser; or (b) by Sub-Adviser or Adviser upon 120 days' written notice to
the other party to the Agreement.
5. This Agreement shall automatically terminate:
(a) in the event of its assignment (as defined in the Investment
Company Act of 1940); or (b) in the event of termination of the
Investment Advisory Contract for any reason whatsoever.
6. So long as both Adviser and Sub-Adviser shall be legally qualified to
act as an investment adviser to the Fund, neither Adviser nor Sub-Adviser shall
act as an investment adviser (as such term is defined in the Investment Company
Act of 1940) to the Fund except as provided herein and in the Investment
Advisory Contract or in such other manner as may be expressly agreed between
Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign prior
to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the
Directors of the Fund pursuant to the provisions of Paragraph 3 of this
Agreement or Paragraph 6 of the Investment Advisory Contract, the remaining
party, Sub-Adviser or Adviser as the case may be, shall not be prohibited from
serving as an investment adviser to such Fund by reason of the provisions of
this Paragraph 6.
7. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by the vote
of a majority of Directors of the Fund, including a majority of Directors who
are not parties to this Agreement or interested persons, as defined in Section
2(a)(19) of the Investment Company Act of 1940, of any such party at a meeting
called for that purpose, and, where required by Section 15(a)(2) of the Act, by
the holders of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Investment Company Act of 1940) of the Fund.
<PAGE>
Exhibit A
FEDERATED UTILITY FUND, INC.
Sub-Advisory Contract
For all services rendered by Sub-Adviser hereunder, Sub-Adviser shall
receive from the Adviser an allocable portion of the Fund's investment advisory
fee. Such allocation shall be based on the amount of foreign securities which
Sub-Adviser is managing for the Fund. The Sub-Advisory Fee shall be accrued
daily, and paid daily as set forth in the Primary Advisory Contract dated August
1, 1989.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duly authorized officers, and their corporate
seals to be affixed hereto this 1st day of June, 1997.
ATTEST: PASSPORT RESEARCH, LTD.
/S/ STEPHEN A. KEEN By: /S/ J. CHRISTOPHER DONAHUE
Stephen A. Keen J. Christopher Donahue
Secretary President
FEDERATED GLOBAL RESEARCH
CORP.
/S/ STEPHEN A. KEEN By: /S/ WILLIAM D. DAWSON, III
Stephen A. Keen William D. Dawson, III
Secretary Executive Vice President
Exhibit 6(v) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios and Classes of Shares
listed on Schedule A to Exhibit 1, as may be amended from time to time,
having their principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation. Each of the Exhibits hereto is incorporated herein in its
entirety and made a part hereof. In the event of any inconsistency between
the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. Each of the Investment Companies hereby appoint FSC as agent to sell and
distribute shares of the Investment Companies which may be offered in
one or more series (the "Funds") consisting of one or more classes (the
"Classes") of shares (the "Shares"), as described and set forth on one
or more exhibits to this Agreement, at the current offering price
thereof as described and set forth in the current Prospectuses of the
Funds. FSC hereby accepts such appointment and agrees to provide such
other services for the Investment Companies, if any, and accept such
compensation from the Investment Companies, if any, as set forth in the
applicable exhibits to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever
in the judgment of the applicable Investment Company it is in its best
interest to do so.
3. Neither FSC nor any other person is authorized by the Investment Companies
to give any information or to make any representation relative to any
Shares other than those contained in the Registration Statement,
Prospectuses, or Statements of Additional Information ("SAIs") filed with
the Securities and Exchange Commission, as the same may be amended from
time to time, or in any supplemental information to said Prospectuses or
SAIs approved by the Investment Companies. FSC agrees that any other
information or representations other than those specified above which it or
any dealer or other person who purchases Shares through FSC may make in
connection with the offer or sale of Shares, shall be made entirely without
liability on the part of the Investment Companies. No person or dealer,
other than FSC, is authorized to act as agent for the Investment Companies
for any purpose. FSC agrees that in offering or selling Shares as agent of
the Investment Companies, it will, in all respects, duly conform to all
applicable state and federal laws and the rules and regulations of the
National Association of Securities Dealers, Inc., including its Rules of
Fair Practice. FSC will submit to the Investment Companies copies of all
sales literature before using the same and will not use such sales
literature if disapproved by the Investment Companies.
4. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and thereafter for
successive periods of one year if such continuance is approved at least
annually by the Trustees/Directors of the Investment Companies including a
majority of the members of the Board of Trustees/Directors of the
Investment Companies who are not interested persons of the Investment
Companies and have no direct or indirect financial interest in the
operation of any Distribution Plan relating to the Investment Companies or
in any related documents to such Plan ("Disinterested Trustees/Directors")
cast in person at a meeting called for that purpose. If a Class is added
after the first annual approval by the Trustees/Directors as described
above, this Agreement will be effective as to that Class upon execution of
the applicable exhibit and will continue in effect until the next annual
approval of this Agreement by the Trustees/Directors and thereafter for
successive periods of one year, subject to approval as described above.
5. This Agreement may be terminated with regard to a particular Fund or
Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees/Directors or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement.
6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the
Investment Company Act of 1940, as amended, provided, however, that FSC
may employ such other person, persons, corporation or corporations as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Investment Companies for anything done or
omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed
by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in writing
of all the parties hereto, provided that such amendment is approved by
the Trustees/Directors of the Investment Companies including a majority
of the Disinterested Trustees/Directors of the Investment Companies cast
in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Investment Companies
agree to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of 1933
and Section 20 of the Securities Act of 1934, as amended, against any and
all loss, liability, claim, damage and expense whatsoever (including but
not limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Prospectuses or SAIs (as from time to
time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Investment Companies about FSC by or on behalf
of FSC expressly for use in the Registration Statement, any Prospectuses
and SAIs or any amendment or supplement thereof.
If any action is brought against FSC or any controlling person
thereof with respect to which indemnity may be sought against any
Investment Company pursuant to the foregoing paragraph, FSC shall
promptly notify the Investment Company in writing of the
institution of such action and the Investment Company shall assume
the defense of such action, including the employment of counsel
selected by the Investment Company and payment of expenses. FSC or
any such controlling person thereof shall have the right to employ
separate counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of FSC or such controlling
person unless the employment of such counsel shall have been
authorized in writing by the Investment Company in connection with
the defense of such action or the Investment Company shall not
have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be
borne by the Investment Company. Anything in this paragraph to the
contrary notwithstanding, the Investment Companies shall not be
liable for any settlement of any such claim of action effected
without their written consent. The Investment Companies agree
promptly to notify FSC of the commencement of any litigation or
proceedings against the Investment Companies or any of their
officers or Trustees/Directors or controlling persons in
connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the Investment Companies,
each of its Trustees/Directors, each of its officers who have signed
the Registration Statement and each other person, if any, who controls
the Investment Companies within the meaning of Section 15 of the
Securities Act of 1933, but only with respect to statements or
omissions, if any, made in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof in reliance
upon, and in conformity with, information furnished to the Investment
Companies about FSC by or on behalf of FSC expressly for use in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof. In case any action shall be brought against any
Investment Company or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the
Investment Companies, and the Investment Companies and each other
person so indemnified shall have the rights and duties given to FSC by
the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any person
against liability to the Investment Companies or their
shareholders to which such person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in
the performance of the duties of such person or by reason of the
reckless disregard by such person of the obligations and duties of
such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940, as
amended, for Trustees/Directors, officers, FSC and controlling
persons of the Investment Companies by the Trustees/Directors
pursuant to this Agreement, the Investment Companies are aware of
the position of the Securities and Exchange Commission as set
forth in the Investment Company Act Release No. IC-11330.
Therefore, the Investment Companies undertakes that in addition
to complying with the applicable provisions of this Agreement, in
the absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence of
such a decision, a reasonable determination based upon factual
review has been made (i) by a majority vote of a quorum of
non-party Disinterested Trustees/Directors, or (ii) by
independent legal counsel in a written opinion that the
indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties. The
Investment Companies further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer,
Trustees/Directors, FSC or controlling person of the Investment
Companies will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security
for his undertaking; (ii) the Investment Companies is insured
against losses arising by reason of any lawful advances; or (iii)
a majority of a quorum of non-party Disinterested
Trustees/Directors or independent legal counsel in a written
opinion makes a factual determination that there is reason to
believe the indemnitee will be entitled to indemnification.
11. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.
12. This Agreement will become binding on the parties hereto upon the
execution of the attached exhibits to the Agreement.
<PAGE>
Exhibit 1
to the
Distributor's Contract
The following provisions are hereby incorporated and made part of the
Distributor's Contract (the "Distributor's Contract") dated October 24, 1997,
between the Investment Companies and Federated Securities Corp. as principal
distributor (the "Principal Distributor") with respect to the Class B Shares of
the portfolios (the "Funds") set forth on the attached Schedule A. References
herein to this Distributor's Contract refer to the Distributor's Contract as
supplemented hereby and made applicable hereby to the Class B Shares of the
Funds. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Distributor's Contract, the terms of this Exhibit will govern.
Once effective in respect of the Class of Shares of any Fund set forth above,
the Distributors Contract as amended by this Exhibit shall be effective in
respect of all shares of such class outstanding whether issued prior to or after
such effectiveness.
1. The Investment Companies hereby appoints the Principal Distributor to
engage in activities principally intended to result in the sale of Class B
Shares ("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Distributor is authorized to select a group of financial
institutions ("Financial Institutions") to sell Class B Shares of a Fund
at the current offering price thereof as described and set forth in the
respective prospectuses of the Fund.
2. (a) In consideration of the Principal Distributor's services under this
Distributor's Contract in respect of each Fund the Investment Companies
on behalf of the Fund agree: (I) to pay the Principal Distributor or at
its direction its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") equal to 0.75 of 1% per annum of the average
daily net asset value of the Class B Shares of the Fund outstanding
from time to time, and (II) to withhold from redemption proceeds in
respect of Class B Shares of the Fund such Principal Distributor's
Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs")
payable in respect of such redemption as provided in the Prospectus for
the Fund and to pay the same over to such Principal Distributor or at
its direction at the time the redemption proceeds in respect of such
redemption are payable to the holder of the Class B Shares redeemed.
(b)The Principal Distributor will be deemed to have performed all
services required to be performed in order to be entitled to receive
its Allocable Portion of the Distribution Fee payable in respect of the
Class B Shares of a Fund upon the settlement of each sale of a
"Commission Share" (as defined in the Allocation Schedule attached
hereto as Schedule B) of the Fund taken into account in determining
such Principal Distributor's Allocable Portion of such Distribution
Fees.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract or (to the extent waiver thereof is
permitted thereby) applicable law, the Investment Companies' obligation
to pay the Principal Distributor's Allocable Portion of the
Distribution Fees payable in respect of the Class B Shares of a Fund
shall not be terminated or modified for any reason (including a
termination of this Distributor's Contract as it relates to Class B
Shares of a Fund) except to the extent required by a change in the
Investment Company Act of 1940 (the "Act") or the Conduct Rules of the
National Association of Securities Dealers, Inc., in either case
enacted or promulgated after May 1, 1997, or in connection with a
"Complete Termination" (as hereinafter defined) of the Distribution
Plan in respect of the Class B Shares of a Fund.
(d)The Investment Companies will not take any action to waive or change
any CDSC in respect of the Class B Shares of a Fund, except as provided
in the Investment Companies' prospectus or statement of additional
information as in effect as of the date hereof without the consent of
the Principal Distributor and the permitted assigns of all or any
portion of its right to its Allocable Portion of the CDSCs.
(e)Notwithstanding anything to the contrary set forth in this Exhibit,
the Distributor's Contract, or (to the extent waiver thereof is
permitted thereby) applicable law, neither the termination of the
Principal Distributor's role as principal distributor of the Class B
Shares of a Fund, nor the termination of this Distributor's Contract
nor the termination of the Distribution Plan will terminate such
Principal Distributor's right to its Allocable Portion of the CDSCs in
respect of the Class B Shares of a Fund.
(f)Notwithstanding anything to the contrary in this Exhibit, the
Distributor's Contract, or (to the extent waiver thereof is permitted
thereby) applicable law, the Principal Distributor may assign, sell or
pledge (collectively, a "Transfer") its rights to its Allocable Portion
of the Distribution Fees and CDSCs earned by it (but not its
obligations to the Investment Companies under this Distributor's
Contract) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the distribution of Class B Shares of
the Fund and in connection therewith upon receipt of notice of such
Transfer, the Investment Companies shall pay, or cause to be paid to
the assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Principal Distributor's
Allocable Portion of the Distribution Fees and CDSCs in respect of the
Class B Shares of the Fund so Transferred. Except as provided in (c)
above and notwithstanding anything to the contrary set forth elsewhere
in this Exhibit, the Distributor's Contract, or (to the extent waiver
thereof is permitted thereby) applicable law, to the extent the
Principal Distributor has Transferred its rights thereto to raise funds
as aforesaid, the Investment Companies' obligation to pay to the
Principal Distributor's Transferees the Principal Distributor's
Allocable Portion of the Distribution Fees payable in respect of the
Class B Shares of each Fund shall be absolute and unconditional and
shall not be subject to dispute, offset, counterclaim or any defense
whatsoever, including without limitation, any of the foregoing based on
the insolvency or bankruptcy of the Principal Distributor (it being
understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such
claims against the assets of such Principal Distributor other than the
Distributor's right to the Distribution Fees, CDSCs and servicing fees,
in respect of the Class B Shares of any Fund which have been so
transferred in connection with such Transfer). The Fund agrees that
each such Transferee is a third party beneficiary of the provisions of
this clause (f) but only insofar as those provisions relate to
Distribution Fees and CDSCs transferred to such Transferee.
(g)For purposes of this Distributor's Contract, the term Allocable
Portion of Distribution Fees payable in respect of the Class B Shares
of any Fund shall mean the portion of such Distribution Fees allocated
to such Principal Distributor in accordance with the Allocation
Schedule attached hereto as Schedule B.
(h)For purposes of this Distributor's Contract, the term "Complete
Termination" of the Plan in respect of any Fund means a termination of
the Plan involving the complete cessation of the payment of
Distribution Fees in respect of all Class B Shares of such Fund, and
the termination of the distribution plans and the complete cessation of
the payment of distribution fees pursuant to every other Distribution
Plan pursuant to rule 12b-1 of the Investment Companies in respect of
such Fund and any successor Fund or any Fund acquiring a substantial
portion of the assets of such Fund and for every future class of shares
which has substantially similar characteristics to the Class B Shares
of such Fund including the manner of payment and amount of sales
charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
3. The Principal Distributor may enter into separate written agreements with
various firms to provide certain of the services set forth in Paragraph 1
herein. The Principal Distributor, in its sole discretion, may pay
Financial Institutions a lump sum fee on the settlement date for the sale
of each Class B Share of the Fund to their clients or customers for
distribution of such share. The schedules of fees to be paid such firms or
Financial Institutions and the basis upon which such fees will be paid
shall be determined from time to time by the Principal Distributor in its
sole discretion.
4. The Principal Distributor will prepare reports to the Board of
Trustees/Directors of the Investment Companies 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 between the Investment Companies and the Principal Distributor, the
Principal Distributor and the Investment Companies hereby execute and deliver
this Exhibit with respect to the Class B Shares of the Fund.
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY` Title: EXECUTIVE VICE PRESIDENT
ATTEST: FEDERATED SECURITIES CORP.
By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTOR'S CONTRACT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B shares
<PAGE>
Schedule B
to the Distributor's
Contract for Class B
Shares of the
Federated Funds
ALLOCATION SCHEDULE
Contingent Deferred Sales Charges and Asset Based Sales Charges related
to Shares of each Fund shall be allocated among the existing Principal
Distributor and any subsequent Principal Distributor in accordance with this
Schedule B.
Defined terms used in this Schedule B and not otherwise defined herein
shall have the meaning assigned to them in the Distributor's Contract. As used
herein the following terms shall have the meanings indicated:
"COMMISSION SHARE", means in respect of any Fund, each Share of such
Fund, other than an Omnibus Share, which is issued under circumstances which
would normally give rise to an obligation of the holder of such Share to pay a
Contingent Deferred Sales Charge upon redemption of such Share (including,
without limitation, any Share of such Fund issued in connection with a Permitted
Free Exchange) and any such Share shall continue to be a Commission Share of
such Fund prior to the redemption (including a redemption in connection with a
Permitted Free Exchange) or conversion of such Share, even though the obligation
to pay the Contingent Deferred Sales Charge may have expired or conditions for
waivers thereof may exist.
"DATE OF ORIGINAL ISSUANCE" means in respect of any Commission Share,
the date with reference to which the amount of the Contingent Deferred Sales
Charge payable on redemption thereof, if any, is computed.
"EXISTING DISTRIBUTOR CUT-OFF DATE" means , in respect of any Fund, the
last date on which the existing Principal Distributor acted as Principal
Distributor of Shares of such Fund.
"FREE SHARE" means, in respect of any Fund, each Share of such Fund,
other than a Commission Share or Omnibus Share (including, without limitation,
any Share issued in connection with the reinvestment of dividends or capital
gains).
"INCEPTION DATE" means in respect of any Fund, the first date on which
such Fund issued Shares.
"NET ASSET VALUE" means, (i) with respect to any Fund, as of the date
any determination thereof is made, the net asset value of such Fund computed in
the manner such value is required to be computed by such Fund in its reports to
its shareholders, and (ii) with respect to any Share of such Fund as of any
date, the quotient obtained by dividing: (A) the net asset value of such Fund
(as computed in accordance with clause (i) above) allocated to Shares of such
Fund (in accordance with the constituent documents for such Fund) as of such
date, by (B) the number of Shares of such Fund outstanding on such date.
"OMNIBUS SHARE" means, in respect of any Fund, a commission share sold
by one of the Selling Agents listed on Exhibit I. If the Fund, the existing
Principal Distributor and its Transferees and each subsequent Principal
Distributor determine that the Seller's Transfer Agent is able to track all
commission shares sold by any of the Selling Agents listed on Exhibit I in the
same manner as Commission Shares are currently tracked in respect of Selling
Agents not listed on Exhibit I, then Exhibit I shall be amended to delete such
Selling Agent from Exhibit I so that commission shares sold by such Selling
Agent will thereafter be treated as Commission Shares.
"SUBSEQUENT DISTRIBUTOR START-UP DATE" means, in respect of any
subsequent Principal Distributor and any Fund, the first date on which such
subsequent Principal Distributor acted as principal distributor of Shares of
such Fund.
"SUBSEQUENT DISTRIBUTOR CUT-OFF DATE" means, in respect of any
subsequent Principal Distributor and any Fund, the last date on which such
subsequent Principal Distributor acted as principal distributor of Shares of
such Fund.
PART I: ATTRIBUTION OF SHARES
Shares of each Fund, which are outstanding from time to time, shall be
attributed to the existing Principal Distributor and any subsequent Principal
Distributor in accordance with the following rules:
(1) COMMISSION SHARES:
(a) Commission Shares of any Fund attributed to the existing Principal
Distributor shall be Commission Shares, the Date of Original Issuance of which
occurred on or after the Inception Date of such Fund and on or prior to the
Existing Distributor Cut-Off Date in respect of such Fund.
(b) Commission Shares of any Fund attributed to any subsequent
Principal Distributor shall be Commission Shares of such Fund, the Date of
Original Issuance of which occurs after the Subsequent Distributor Start-Up Date
and on or prior to the Subsequent Distributor Cut-Off Date.
(c) A Commission Share of a particular Fund (the "ISSUING FUND") issued
in consideration of the investment of the proceeds of the redemption of a
Commission Share of another Fund (the "REDEEMING FUND") in connection with a
Permitted Free Exchange, is deemed to have a Date of Original Issuance identical
to the Date of Original Issuance of the Commission Share of the Redeeming Fund
and any such Commission Share will be attributed to the existing Principal
Distributor or a subsequent Principal Distributor based upon such Date of
Original Issuance in accordance with rules (a) and (b) above.
(d) A Commission Share redeemed other than in connection with a
Permitted Free Exchange or converted to a Class A share is attributable to the
existing Principal Distributor or a subsequent Principal Distributor based upon
the Date of Original Issuance in accordance with rule (a), (b) and (c) above.
(2) OMNIBUS SHARES:
Omnibus Shares of a Fund outstanding on any date shall be attributed to
the existing Principal Distributor or a subsequent Principal Distributor, as the
case may be, in the same proportion that outstanding Commission Shares of such
Fund are attributed to it on such date.
<PAGE>
(3) FREE SHARES:
Free Shares of a Fund outstanding on any date shall be attributed to
the existing Principal Distributor or a subsequent Principal Distributor, as the
case may be, in the same proportion that the Commission Shares of such Fund
outstanding on such date are attributed to it on such date.
PART II: ALLOCATION OF CONTINGENT DEFERRED SALES CHARGES ("CDSCS")
(1) CDSCS RELATED TO THE REDEMPTION OF COMMISSION SHARES:
CDSCs in respect of the redemption of Commission Shares shall be
allocated to the existing Principal Distributor or a subsequent Principal
Distributor depending upon whether the related redeemed Commission Share is
attributable to the existing Principal Distributor or such subsequent Principal
Distributor, as the case may be, in accordance with Part I above.
(2) CDSCS RELATED TO THE REDEMPTION OF OMNIBUS SHARES:
Aggregate CDSCs in respect of the redemption of Omnibus Shares of all
Funds during any period shall be allocated to the existing Principal Distributor
or a subsequent Principal Distributor in the same proportion that aggregate
CDSCs related to Commission Shares of all Funds during such period were
allocated to each thereof.
PART III: ALLOCATION OF ASSET BASED SALES CHARGES
Assuming that the Asset Based Sales Charge remains constant over time
and among Funds so that Part IV hereof does not become operative:
(1) The portion of the aggregate Asset Based Sales Charges accrued in
respect of all Shares of all Funds during any calendar month allocable to the
existing Principal Distributor or a subsequent Principal Distributor is
determined by multiplying the total of such Asset Based Sales Charges by the
following fraction:
(A + C) / 2
(B + D) / 2
where:
A = The aggregate Net Asset Value of all Shares of all Funds attributed
to the existing Principal Distributor or such subsequent Principal
Distributor, as the case may be, and outstanding at the beginning of
such calendar month
B = The aggregate Net Asset Value of all Shares of all Funds at the beginning
of such calendar month
C = The aggregate Net Asset Value of all Shares of all Funds attributed
to the existing Principal Distributor or such subsequent Principal
Distributor, as the case may be, and outstanding at the end of such
calendar month
D = The aggregate Net Asset Value of all Shares of all Funds at the end of
such calendar month
(2) If the Fund, the existing Principal Distributor and its Transferees
and each subsequent Principal Distributor determine that the Transfer Agent is
able to produce automated monthly reports which allocate the average Net Asset
Value of the Commission Shares (or all Shares if available) of all Funds among
the existing Principal Distributor and each subsequent Principal Distributor in
a manner consistent with the methodology detailed in Part I and Part III(1)
above, the portion of the Asset Based Sales Charges accrued in respect of all
Shares of all Funds during a particular calendar month will be allocated to the
existing Principal Distributor and each subsequent Principal Distributor by
multiplying the total of such Asset Based Sales Charges by the following
fraction:
(A) / (B)
where:
A = Average Net Asset Value of all the Commission Shares (or all Shares
if available) of all Funds for such calendar month attributed to the
existing Principal Distributor or such subsequent Principal
Distributor, as the case may be
B = Total average Net Asset Value of all Commission Shares (or all Shares if
available) of all Funds for such calendar month
PART IV: ADJUSTMENTS OF THE EXISTING PRINCIPAL DISTRIBUTOR'S AND EACH SUBSEQUENT
PRINCIPAL DISTRIBUTOR'S ALLOCABLE SHARE OF ASSET BASED SALES CHARGES AND
CONTINGENT DEFERRED SALES CHARGES
The Parties to the Distributor's Contract recognize that, if the terms
of any Distributor's Contract, any Distribution Plan, any Prospectus, the
Conduct Rules or any other Applicable Law change disproportionately reduces, in
a manner inconsistent with the intent of this Allocation Schedule the amount of
the existing Principal Distributor's or any subsequent Principal Distributor's
Allocable Portion of Asset Based Sales Charges or Contingent Deferred Sales
Charges in respect of any Fund that would have been determined on the basis of
this Allocation Schedule as of any date had no such change occurred, this
Allocation Schedule in respect of the Shares relating to such Fund shall be
adjusted by agreement among the Fund, the existing Principal Distributor and its
Transferees and each subsequent Principal Distributor; PROVIDED, HOWEVER, if the
existing Principal Distributor, such Transferees, each subsequent Principal
Distributor and such Fund cannot agree within thirty (30) days after the date of
any such change, the Parties shall submit the question to arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association and the decision reached by the arbitrator shall be final and
binding on the Parties hereto.
<PAGE>
EXHIBIT I
SELLING AGENTS CURRENTLY OFFERING OMNIBUS SHARES
1. Merrill Lynch
2. Core-Link
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
STATE STREET
DOMESTIC CUSTODY
FEE SCHEDULE
FEDERATED FUNDS
I. Custody Services
Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.
ANNUAL FEES
ASSET
Per Fund .25 Basis Points
Wire Fees $3.00 per wire
Settlements:
o Each DTC Transaction $5.00
o Each Federal Reserve Book Entry Transaction $3.75
o Each Repo Transaction (All Repo) $3.75
o Each Physical Transaction (NY/Boston, Private Placement) $15.00
o Each Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
o Government Paydowns $5.00
o Maturity Collections $8.00
o PTC Transactions $6.00
II. Special Services
Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
III. Balance Credit
MUNICIPAL FUNDS
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.
TRANSFER AGENT
A balance credit equal to 100% of the average balance in the transfer
agent demand deposit accounts, less the reserve requirement and applicable
related expenses, times 75% of the 30 average Fed Funds Rate.
IV. Payment
The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds' offices.
V. Term of Contract
The parties agree that this fee schedule shall become effective January 1,
1997.
FEDERATED SERVICES COMPANY STATE STREET
BY: /S/ DOUGLAS L. HEIN BY: /S/ MICHAEL E. HAGERTY
TITLE: SENIOR VICE PRESIDENT TITLE: VICE PRESIDENT
DATE: APRIL 15, 1997 DATE: APRIL 8, 1997
----------------------------------- -------------
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDED AND RESTATED
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and enterered into as of the first day of March, 1994),
by and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this
form of Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business trust,
having its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance
of Services. FSS hereby accepts such appointments. FSS agrees to provide
or cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description
of the Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.
3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund ("Independent Board Members") cast in
person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. FSS shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such Fund's
Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Fund that is a Massachusetts business
trust and agrees that the obligations assumed by each such Fund pursuant
to this Agreement shall be limited in any case to such Fund and its assets
and that FSS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund
and to such Fund at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Exhibit
1)
Attest: /S/JOHN W. MCGONIGLE By: /S/ JOHN F. DONAHUE
John W. McGonigle John F. Donahue
Secretary Chairman
Federated Shareholder Services
Attest: /S/ JOSEPH M HUBER By: /S/ JOHN W. MCGONIGLE
Secretary President
<PAGE>
Exhibit 1
AUTOMATED GOVERNMENT MONEY TRUST
CASH TRUST SERIES, INC.:
Government Cash Series
Municipal Cash Series
Prime Cash Series
Treasury Cash Series
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
FEDERATED AMERICAN LEADERS FUND, INC.
Class A Shares
Class C Shares
Class F Shares
FEDERATED ARMS FUND
Institutional Service Shares
Institutional Shares
FEDERATED CORE TRUST:
High Yield Bond Portfolio
FEDERATED EQUITY FUNDS:
Federated Aggressive Growth Fund
Class A Shares
Class C Shares
Federated Capital Appreciation Fund Class A Shares Class C Shares Federated
Growth Strategies Fund Class A Shares Class C Shares Federated Small Cap
Strategies Fund Class A Shares Class C Shares FEDERATED EQUITY INCOME FUND, INC.
Class A Shares Class C Shares Class F Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class A Shares
Class C Shares
FEDERATED GNMA TRUST
Institutional Service Shares
Institutional Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class A Shares
Class C Shares
Class F Shares
FEDERATED GOVERNMENT TRUST"
Automated Government Cash Reserves
Automated Treasury Cash Reserves
U.S. Treasury Cash Reserves
Institutional Service Shares
Institutional Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class A Shares
Class C Shares
FEDERATED HIGH YIELD TRUST
FEDERATED INCOME SECURITIES TRUST:
Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares
Federated Income Trust
Institutional Service Shares
Institutional Shares
FEDERATED INDEX TRUST:
Federated Max-Cap Fund
CLASS C SHARES
Institutional Service Shares
Institutional Shares
Federated Mid-Cap Fund
Federated Mini-Cap Fund
CLASS C SHARES
Institutional Shares
FEDERATED INSTITUTIONAL TRUST:
Federated Institutional Short-Term Government Fund
FEDERATED INVESTMENT TRUST:
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Federated Master Trust
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class A Shares
Class C Shares
Class F Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class A Shares
Class C Shares
FEDERATED MUNICIPAL TRUST:
Alabama Municipal Cash Trust
California Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Connecticut Municipal Cash Trust
Institutional Service Shares
Florida Municipal Cash Trust
Cash II Shares
Institutional Shares
Georgia Municipal Cash Trust
Maryland Municipal Cash Trust
Massachusetts Municipal Cash Trust
Institutional Service Shares
Boston 1784 Funds Shares
Michigan Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Minnesota Municipal Cash Trust
Cash Series Shares
Institutional Shares
New Jersey Municipal Cash Trust
Institutional Service Shares
Institutional Shares
New York Municipal Cash Trust
Cash II Shares
Institutional Service Shares
North Carolina Municipal Cash Trust
Ohio Municipal Cash Trust
Cash II Shares
Institutional Shares
Institutional Service Shares
Pennsylvania Municipal Cash Trust
Cash Series Shares
Institutional Service Shares
Institutional Shares
Tennessee Municipal Cash Trust
Institutional Shares
Institutional Service Shares
Virginia Municipal Cash Trust
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM MUNICIPAL TRUST
Institutional Service Shares
Institutional Shares
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
FEDERATED STOCK AND BOND FUND, INC.
Class A Shares
Class C Shares
FEDERATED STOCK TRUST
FEDERATED TAX-FREE TRUST
FEDERATED U.S. GOVERNMENT BOND FUND
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
Institutional Service Shares
Institutional Shares
FEDERATED U. S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
Institutional Service Shares
Institutional Shares
FIXED INCOME SECURITIES, INC.:
Federated Limited Term Fund
Class A Shares
Class F Shares
Federated Limited Term Municipal Fund
Class A Shares
Class F Shares
<PAGE>
Federated Strategic Income Fund
Class A Shares
Class C Shares
Class F Shares
FEDERATED TOTAL RETURN SERIES, INC.: Federated Limited Duration Government Fund
Institutional Shares Institutional Service Shares Federated Total Return Bond
Fund Institutional Shares Institutional Service Shares Federated Total Return
Government Fund Institutional Shares Institutional Service Shares Federated
Total Return Limited Duration Fund Institutional Shares Institutional Service
Shares FEDERATED UTILITY FUND, INC. Class A Shares Class C Shares Class F Shares
INTERMEDIATE MUNICIPAL TRUST: Federated Intermediate Municipal Trust Federated
Pennsylvania Intermediate Municipal Trust INTERNATIONAL SERIES, INC.: Federated
International Equity Fund Class A Shares Class C Shares Federated International
Income Fund Class A Shares Class C Shares INVESTMENT SERIES FUNDS, INC.:
Federated Bond Fund Class A Shares Class C Shares Class F Shares EDWARD D. JONES
& CO. DAILY PASSPORT CASH TRUST LIBERTY TERM TRUST, INC. -- 1999 LIBERTY U.S.
GOVERNMENT MONEY MARKET TRUST Class A Shares LIQUID CASH TRUST MANAGED SERIES
TRUST: Federated Aggressive Growth Fund Institutional Shares Select Shares
Federated Managed Growth and Income Fund Institutional Shares Select Shares
Federated Managed Growth Fund Institutional Shares Select Shares
<PAGE>
Federated Managed Income Fund
Institutional Shares
Select Shares
MONEY MARKET MANAGEMENT, INC.
MONEY MARKET OBLIGATIONS TRUST:
Automated Cash Management Trust
Cash II Shares
Institutional Shares
Government Obligations Fund
Institutional Shares
Institutional Service Shares
Government Obligations Tax-Managed Fund Institutional Shares Institutional
Service Shares Prime Obligations Fund Institutional Shares Institutional Service
Shares Tax-Free Obligations Fund Institutional Shares Institutional Service
Shares Treasury Obligations Fund Institutional Capital Shares Institutional
Shares Institutional Service Shares MONEY MARKET OBLIGATIONS TRUST II: Municipal
Obligations Fund Institutional Capital Shares Institutional Service Shares
Institutional Shares Prime Cash Obligations Fund Institutional Capital Shares
Institutional Service Shares Institutional Shares Prime Value Obligations Fund
Institutional Capital Shares Institutional Service Shares Institutional Shares
MONEY MARKET TRUST MUNICIPAL SECURITIES INCOME TRUST: Federated California
Municipal Income Fund Class F Shares Federated Michigan IntermediateMunicipal
Trust Federated New York Municipal Income Fund Class F Shares Federated Ohio
Municipal Income Fund Class F Shares Federated Pennsylvania Municipal Income
Fund Class A Shares
<PAGE>
TAX-FREE INSTRUMENTS TRUST
Institutional Service Shares
Investment Shares
TRUST FOR GOVERNMENT CASH RESERVES
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
TRUST FOR U.S. TREASURY OBLIGATIONS
WORLD INVESTMENT SERIES, INC.: Federated Asia Pacific Growth Fund Class A Shares
Class C Shares Federated Emerging Markets Fund Class A Shares Class C Shares
Federated European Growth Fund Class A Shares Class C Shares Federated Global
Equity Income Fund Class A Shares Class C Shares Federated International Growth
Fund Class A Shares Class C Shares Federated International High Income Fund
Class A Shares Class C Shares Federated International Small Company Fund Class A
Shares Class C Shares Federated Latin American Growth Fund Class A Shares Class
C Shares Federated World Utility Fund Class A Shares Class C Shares Class F
Shares
Exhibit 9(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Agreement and the terms of any applicable Exhibit, the
terms of the applicable Exhibit shall govern.
In consideration of the mutual covenants hereinafter contained it is hereby
agreed by and between the parties hereto as follows.
1. The Investment Companies hereby appoint the Principal Servicer as their
agent to select, negotiate and contract for the performance of and arrange
for the rendition of personal services to shareholders and/or the
maintenance of accounts of shareholders of each Class of the Funds as to
which this Agreement is made applicable (The Principal Servicer's duties
hereunder are referred to as "Services"). The Principal Servicer hereby
accepts such appointment and agrees to perform or cause to be performed the
Services in respect of the Classes of the Funds to which this Agreement has
been made applicable by an Exhibit. The Principal Servicer agrees to cause
to be provided shareholder services which, in its best judgment (subject to
supervision and control of the Investment Companies' Boards of Trustees or
Directors, as applicable), are necessary or desirable for shareholders of
the Funds. The Principal Servicer further agrees to provide the Investment
Companies, upon request, a written description of the shareholder services
for which the Principal Servicer is arranging hereunder.
2. During the term of this Agreement, each Investment Company will pay the
Principal Servicer and the Principal Servicer agrees to accept as full
compensation for its services rendered hereunder a fee as set forth on the
Exhibit applicable to the Class of each Fund subject to this Agreement.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Class of a Fund, there shall be an
appropriate proration of the monthly fee on the basis of the number of
days that this Agreement is in effect with respect to such Class of the
Fund during the month.
3. This Agreement is effective with respect to each Class of a Fund as of the
date of execution of the applicable Exhibit and shall continue in effect
for one year from the date of its execution, and thereafter for successive
periods of one year only if the form of this Agreement is approved at
least annually by the Board of each Investment Company, including a
majority of the members of the Board of the Investment Company who are not
interested persons of the Investment Company ("Independent Board Members")
cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated with regard to
a particular Class of a Fund as follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Investment Company
or by a vote of a majority of the outstanding voting securities of
any Fund as defined in the Investment Company Act of 1940 on sixty
(60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. The Principal Servicer agrees to arrange to obtain any taxpayer
identification number certification from each shareholder of the Funds to
which it provides Services that is required under Section 3406 of the
Internal Revenue Code, and any applicable Treasury regulations, and to
provide each Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.
6. The Principal Servicer shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any Investment Company in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. the Principal Servicer
shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, trustee, partner, employee
or agent of the Principal Servicer, who may be or become a member of such
Investment Company's Board, officer, employee or agent of any Fund, shall
be deemed, when rendering services to such Fund or acting on any business
of such Fund (other than services or business in connection with the duties
of the Principal Servicer hereunder) to be rendering such services to or
acting solely for such Fund and not as an officer, trustee, partner,
employee or agent or one under the control or direction of the Principal
Servicer even though paid by the Principal Servicer.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. The Principal Servicer is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Investment
Company that is a Massachusetts business trust and agrees that the
obligations assumed by each such Investment Company pursuant to this
Agreement shall be limited in any case to such Investment Company and its
assets and that the Principal Servicer shall not seek satisfaction of any
such obligations from the shareholders of such Investment Company, the
Trustees, Officers, Employees or Agents of such Investment Company, or any
of them.
9. The execution and delivery of this Agreement have been authorized by the
Directors of the Principal Servicer and signed by an authorized officer of
the Principal Servicer, acting as such, and neither such authorization by
such Directors nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this Agreement
are not binding upon any of the Directors or shareholders of the Principal
Servicer, but bind only the property of the Principal Servicer as provided
in the Articles of Incorporation of the Principal Servicer.
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to the
Principal Servicer at Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the Principal Servicer in the case of assignment by any
Investment Company, or of the Investment Companies in the case of
assignment by the Principal Servicer, except that any party may assign to
a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 13 shall prevent the Principal Servicer from
delegating its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT
Federated Securities Corp.
Attest: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
<PAGE>
Exhibit 1
to the
Principal Shareholder Servicer's Agreement
Related to Class B Shares of
the Funds
The following provisions are hereby incorporated and made part of the
Principal Shareholder Servicer's Agreement (the "Principal Shareholder
Servicer's Agreement") as of the 24th day of October, 1997, by and between those
Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779, and who have approved this form of
Agreement and Federated Securities Corp. as the principal shareholder servicer
(the "Principal Servicer"). Each of the Exhibits hereto is incorporated herein
in its entirety and made a part hereof. In the event of any inconsistency
between the terms of this Exhibit and the terms of the Principal Shareholder
Servicer's Agreement, the terms of this Exhibit shall govern.
1. Each Investment Company hereby appoints the Principal Servicer to arrange
for the rendition of the shareholder services in respect of Class B Shares
("Class B Shares") of each Fund. Pursuant to this appointment, the
Principal Servicer is authorized to select various companies including but
not limited to Federated Shareholder Services ("Companies or a Company ")
to provide such services.
2. (a) In consideration of the Principal Servicer's Services under this
Agreement in respect of the Class B Shares each Fund agrees to pay the
Principal Servicer or at its direction its "Allocable Portion" (as
hereinafter defined) of a fee (the "Servicing Fee") equal to 0.25 of 1%
per annum of the average daily net asset value of the Class B Shares of
the Fund outstanding from time to time, PROVIDED HOWEVER, that in the
event the Fund operates as a fund of funds (a "FOF Fund") by investing
the proceeds of the issuance of its Class B Shares in Class A Shares of
another fund (the "Other Fund") and the Principal Shareholder Servicer
receives a servicing fee in respect of the Class A Shares of the Other
Fund so acquired by the FOF Fund, the Servicing Fee payable in respect
of such Class B Shares of the FOF Fund will be reduced by the amount of
the servicing fee actually received by the Principal Shareholder
Servicer or its assign from the Other Fund in respect of the Class A
Shares of the Other Fund acquired with the proceeds of such Class B
Shares of the FOF Fund.
(b)(i) The Principal Servicer will be deemed to have fully earned its
Allocable Portion (computed as of any date) of the Servicing Fee
payable in respect of the Class B Shares of a Fund (and to have
satisfied its obligation to arrange for shareholder services in respect
of such Class B Shares) on the date it has arranged for shareholder
services to be performed by Federated Shareholder Services by payment
of the lump sum contemplated by Alternative A to Exhibit 1 to the
Shareholder Services Agreement among the Principal Servicer, Federated
Shareholder Services and the Fund dated as of the date hereof (the
"Shareholder Services Agreement") to Federated Shareholder Services
(whose obligations are fully supported by its parent company) in
respect of each "Commission Share" (as defined in the Allocation
Schedule attached hereto in Schedule B) of the Fund, taken into account
in determining such Principal Servicer's Allocable Portion of such
Servicing Fees as of such date. The Principal Servicer shall not be
deemed to have any other duties in respect of the Shares and its
Allocable Portion of the Servicing Fees to which the preceding sentence
applies and such arrangements shall be deemed a separate and distinct
contractual arrangement from that described in clause (ii).
(ii) The Principal Servicer will be deemed to have fully earned any
Servicing Fees not included in its Allocable Portion (i.e., those
attributable to Shares in respect of which Alternative A under Exhibit
1 to the Shareholder Services Agreement is not applicable) as such
services are performed in respect of such Shares.
(c)Notwithstanding anything to the contrary set forth in this Exhibit,
the Principal Shareholder Agreement, or (to the extent waiver thereof
is permitted thereby) applicable law, each Investment Company's
obligation to pay the Principal Servicer's Allocable Portion of the
Servicing Fees payable in respect of the Class B Shares of a Fund shall
not be terminated or modified for any reason (including a termination
of this Principal Shareholder Servicer's Agreement as it relates to the
Fund) except to the extent required by a change in the Investment
Company Act of 1940 (the "Act") or the Conduct Rules of the National
Association of Securities Dealers, Inc., in either case enacted or
promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) in respect of the Class B Shares
of such Fund.
(d)Notwithstanding anything to the contrary in this Exhibit, the
Principal Shareholder Agreement, or (to the extent waiver thereof is
permitted thereby) applicable law, the Principal Servicer may assign,
sell or pledge (collectively, "Transfer") its rights to its Allocable
Portion of the Servicing Fees (but not its obligations to the
Investment Companies under this Principal Shareholder Servicer's
Agreement) in respect of the Class B Shares of a Fund to raise funds to
make the expenditures related to the Services and in connection
therewith upon receipt of notice of such Transfer, the Investment
Company shall pay to the assignee, purchaser or pledgee (collectively
with their subsequent transferees, "Transferees") such portion of the
Principal Servicer's Allocable Portion of the Servicing Fees in respect
of the Class B Shares of the Fund so Transferred. Except as provided in
(c) above and notwithstanding anything to the contrary set forth
elsewhere in this Exhibit, the Principal Shareholder Agreement, or (to
the extent waiver thereof is permitted thereby) applicable law, to the
extent the Principal Servicer has Transferred its rights thereto to
raise funds as aforesaid, the Investment Companies' obligation to pay
to the Principal Servicer's Transferees the Principal Servicer's
Allocable Portion of the Servicing Fees payable in respect of the Class
B Shares of each Fund shall be absolute and unconditional and shall not
be subject to dispute, offset, counterclaim or any defense whatsoever,
including without limitation, any of the foregoing based on the
insolvency or bankruptcy of the Principal Servicer, Federated
Shareholder Services (or its parent) or the failure of Federated
Shareholder Services (or its parent) to perform its Irrevocable Service
Commitment (it being understood that such provision is not a waiver of
the Investment Companies' right to pursue such Principal Servicer and
enforce such claims against the assets of such Principal Servicer other
than the Principal Servicer's right to the Distribution Fees, Servicing
Fees and CDSCs in respect of the Class B Shares of the Fund which have
been so transferred in connection with such Transfer). The Fund agrees
that each such Transferee is a third party beneficiary of the
provisions of this clause (d) but only insofar as those provisions
relate to Servicing Fees transferred to such Transferee.
(e)For purposes of this Principal Shareholder Servicer's Agreement, the
term Allocable Portion of Servicing Fees payable in respect of the
Class B Shares of any Fund shall mean the portion of such Servicing
Fees allocated to such Principal Servicer in accordance with the
Allocation Schedule attached hereto as Schedule B.
(f)For purposes of this Principal Shareholder Servicer's Contract, the
term "Complete Termination" of shareholder servicing arrangements in
respect of Class B Shares of a Fund means a termination of shareholder
servicing arrangements involving the complete cessation of payments of
Servicing Fees in respect of all Class B Shares, and the complete
cessation of payments of servicing fees for every existing and future
class of shares of the Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of the Fund ,which has
substantially similar characteristics to the Class B Shares taking into
account the manner and amount of sales charge, servicing fee,
contingent deferred sales charge or other similar charge borne directly
or indirectly by the holders of such shares.
3. The Principal Servicer may enter into separate written agreements with
Companies to provide the services set forth in Paragraph 1 herein. The
schedules of fees to be paid such Companies and the basis upon which such
fees will be paid shall be determined from time to time by the Principal
Servicer in its sole discretion.
4. The Principal Servicer will prepare reports to the Board of
Trustees/Directors of the Investment Companies on a quarterly basis
showing amounts expended hereunder including amounts paid to Companies and
the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Principal
Shareholder Servicer's Contract, the Principal Servicer and the Investment
Companies hereby execute and deliver this Exhibit with respect to the Class B
Shares of each Fund.
Witness the due execution hereof this 24th day of October, 1997.
ATTEST: INVESTMENT COMPANIES (listed on Schedule A)
By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT
ATTEST: FEDERATED SECURITIES CORP.
By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
<PAGE>
Schedule A
Date: 10/24/97 PRINCIPAL SHAREHOLDER SERVICER'S AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
<PAGE>
SCHEDULE B
to the Principal
Shareholder
Servicer's Agreement
for ClassB Shares of
the Federated Funds
ALLOCATION SCHEDULE
Shareholder Servicing Fees related to Shares of each Fund shall be
allocated among the existing Principal Servicer and each subsequent Principal
Servicer in accordance with this Schedule B.
Defined terms used in this Schedule B and not otherwise defined
herein shall have the meaning assigned to them in the Principal Shareholder
Servicer's Agreement. As used herein the following terms shall have the meanings
indicated:
"COMMISSION SHARE", means in respect of any Fund, each Share of such
Fund, other than an Omnibus Share, which is issued under circumstances which
would normally give rise to an obligation of the holder of such Share to pay a
Contingent Deferred Sales Charge upon redemption of such Share (including,
without limitation, any Share of such Fund issued in connection with a Permitted
Free Exchange) and any such Share shall continue to be a Commission Share of
such Fund prior to the redemption (including a redemption in connection with a
Permitted Free Exchange) or conversion of such Share, even though the obligation
to pay the Contingent Deferred Sales Charge may have expired or conditions for
waivers thereof may exist.
"DATE OF ORIGINAL ISSUANCE" means in respect of any Commission
Share, the date with reference to which the amount of the Contingent Deferred
Sales Charge payable on redemption thereof, if any, is computed.
"EXISTING PRINCIPAL SERVICER CUT-OFF DATE" means, in respect of any
Fund, the last date on which the existing Principal Servicer acted as Principal
Servicer of Shares of such Fund.
"4% COMMISSION ASSETS" means, in respect of all Funds, as of any
date, the sum of: (a) in respect of all Shares of all Funds sold by Selling
Agents which have always sold Shares only on a 4% sales commission basis, the
aggregate Net Asset Value as of such date of all outstanding Shares of all Funds
sold by such Selling Agents or derived from such Shares by dividend
reinvestment, free exchanges or otherwise and (b) in respect of all Shares of
all Funds sold by all other Selling Agents which are selling Shares on a 4%
sales commission basis, the aggregate Net Asset Values (as of the respective
Dates of Original Issuance) of all Commission Shares and Omnibus Shares sold by
such Selling Agents on a 4% sales commission basis which were issued on or prior
to such date and which have not been converted to Class A Shares pursuant to a
Permitted Conversion Feature.
"FREE SHARE" means, in respect of any Fund, each Share of such Fund,
other than a Commission Share or Omnibus Share (including, without limitation,
any Share issued in connection with the reinvestment of dividends or capital
gains).
"INCEPTION DATE" means, in respect of any Fund, the first date on
which such Fund issued Shares.
"NET ASSET VALUE" means, (i) with respect to any Fund, as of the
date any determination thereof is made, the net asset value of such Fund
computed in the manner such value is required to be computed by such Fund in its
reports to its shareholders, and (ii) with respect to any Share of such Fund as
of any date, the quotient obtained by dividing: (A) the net asset value of such
Fund (as computed in accordance with clause (i) above) allocated to Shares of
such Fund (in accordance with the constituent documents for such Fund) as of
such date, by (B) the number of Shares of such Fund outstanding on such date.
"OMNIBUS SHARE" means, in respect of any Fund, a commission share
sold by one of the Selling Agents listed on Exhibit I. If the Fund, the
Principal Servicer and its Transferees determine that the Seller's Transfer
Agent is able to track all commission shares sold by any of the Selling Agents
listed on Exhibit I in the same manner as Commission Shares are currently
tracked in respect of Selling Agents not listed on Exhibit I, then Exhibit I
shall be amended to delete such Selling Agent from Exhibit I so that commission
shares sold by such Selling Agent will thereafter be treated as Commission
Shares.
"SUBSEQUENT PRINCIPAL SERVICER START-UP DATE" means, in respect of
any subsequent Principal Servicer and any Fund, the first date on which such
subsequent Principal Servicer acted as principal servicer of Shares of such
Fund.
"SUBSEQUENT PRINCIPAL SERVICER CUT-OFF DATE" means, in respect of
any subsequent Principal Servicer and any Fund, the last date on which such
subsequent Principal Servicer acted as principal servicer of Shares of such
Fund.
PART I: ATTRIBUTION OF SHARES
Shares of each Fund, which are outstanding from time to time, shall
be attributed to the existing Principal Servicer and any subsequent Principal
Servicer in accordance with the following rules:
(1) COMMISSION SHARES:
(a) Commission Shares of any Fund attributed to the existing
Principal Servicer shall be Commission Shares of such Fund acquired by the
existing Principal Servicer, the Date of Original Issuance of which occurred on
or after the Inception Date of such Fund and on or prior to the Existing
Servicer Cut-Off Date.
(b) Commission Shares of any Fund attributed to any Subsequent
Principal Servicer shall be Commission Shares of such Fund, the Date of Original
Issuance of which occurs after the Subsequent Principal Servicer Start-Up Date
and on or prior to the subsequent Principal Servicer Cut-Off Date.
(c) A Commission Share of a particular Fund (the "ISSUING FUND")
issued in consideration of the investment of proceeds of the redemption of a
Commission Share of another Fund (the "REDEEMING FUND") in connection with a
Permitted Free Exchange, is deemed to have a Date of Original Issuance identical
to the Date of Original Issuance of the Commission Share of the Redeeming Fund
and any such Commission Share will be attributed to the existing Principal
Servicer or a subsequent Principal Servicer based upon such Date of Original
Issuance in accordance with rules (a) and (b) above.
(d) A Commission Share redeemed other than in connection with a
Permitted Free Exchange or converted to a Class A Share is attributable to the
existing Principal Servicer or a subsequent Principal Servicer based upon the
Date of Original Issuance in accordance with rules (a), (b) and (c) above.
<PAGE>
(2) OMNIBUS SHARES:
Omnibus Shares of a Fund outstanding on any date shall be attributed
to the existing Principal Servicer or a subsequent Principal Servicer as the
case may be, in the same proportion that outstanding Commission Shares of such
Fund are attributed to it on such date.
(3) FREE SHARES:
Free Shares of a Fund outstanding on any date shall be attributed to
the existing Principal Servicer or a subsequent Principal Servicer as the case
may be, in the same proportion that the Commission Shares of such Fund
outstanding on such date are attributed to it on such date.
PART II: ALLOCATION OF SHAREHOLDER SERVICING FEES
The portion of the Shareholder Servicing Fees accrued in respect of
all Shares of all of the Funds during a particular calendar month and allocable
to the existing Principal Servicer or a subsequent Principal Servicer is
determined by the following formula:
(A - (E x ((C + D)/2))) x B
where:
A = Shareholder Servicing Fees accrued in respect of all Shares of all of the
Funds during a particular calendar month
B = fraction referred to in the next paragraph for such calendar month, in
respect of the existing Principal Servicer or subsequent Principal
Servicer, as the case may be
C = 4% Commission Assets of all Funds as of the beginning of such calendar month
D = 4% Commission Assets of all Funds as of the end of such calendar month
E = .25% times a fraction the numerator of which is the number days in such
calendar month and the denominator of which is 365
Assuming that the Asset Based Sales Charge remains constant over
time and among Funds so that Part III hereof does not become operative:
(1) The fraction referred to in B of the prior paragraph in respect
of any calendar month in respect of the existing Principal Servicer or a
subsequent Principal Servicer is:
(A + C) /2
(B + D) /2
where:
A = The aggregate Net Asset Value of all Shares of all Funds attributed to
the existing Principal Servicer or such subsequent Principal Servicer, as
the case may be, and outstanding at the beginning of such calendar month
B = The aggregate Net Asset Value of all Shares of all Funds at the beginning of
such calendar month
C = The aggregate Net Asset Value of all Shares of all Funds attributed to
the existing Principal Servicer or such subsequent Principal Servicer, as
the case may be, and outstanding at the end of such calendar month
D = The aggregate Net Asset Value of all Shares of all Funds at the end of such
calendar month
(2) If the Fund, the existing Principal Servicer and its Transferees
and each subsequent Principal Servicer determine that the Transfer Agent is able
to produce automated monthly reports which allocate the average Net Asset Value
of the Commission Shares (or all Shares if available) of all Funds among the
existing Principal Servicer and each subsequent Principal Servicer in a manner
consistent with the methodology detailed in Part I and Part III(1) above, the
portion of the Asset Based Sales Charges accrued in respect of all Shares of all
Funds during a particular calendar month will be allocated to the Initial
Purchaser, the Revolving Purchaser or the Seller by multiplying the total of
such Asset Based Sales Charges by the following fraction:
(A) / (B)
where:
A = Average Net Asset Value of all the Commission Shares (or all Shares if
available) of all Funds for such calendar month attributed to the existing
Principal Servicer or such subsequent Principal Servicer, as the case may
be
B = Total average Net Asset Value of all Commission Shares (or all Shares if
available) of all Funds for such calendar month.
PART III: ADJUSTMENTS OF THE EXISTING PRINCIPAL SERVICER'S AND EACH SUBSEQUENT
PRINCIPAL SERVICER'S ALLOCABLE SHARE OF ASSET BASED SALES CHARGES AND
CONTINGENT DEFERRED SALES CHARGES
The Parties to the Principal Shareholder Servicer's Agreement
recognize that, if the terms of any Principal Shareholder Servicer's Agreement,
any Prospectus, the Conduct Rules or any other Applicable Law change
disproportionately reduces, in a manner inconsistent with the intent of this
Allocation Schedule, the amount of the existing Principal Servicer's or any
subsequent Principal Servicer's Allocable Portion of Shareholder Servicing Fees
that would have been determined on the basis of the Allocation Schedule as of
any date had no such change occurred, this Allocation Schedule in respect of the
Shares relating to such Fund shall be adjusted by agreement among the Fund, the
existing Principal Servicer and its Transferees and each subsequent Principal
Servicer; PROVIDED, HOWEVER, if the existing Principal Servicer, such
Transferees, each subsequent Principal Servicer and such Fund cannot agree
within thirty (30) days after the date of any such change, the Parties shall
submit the question to arbitration in accordance with the commercial arbitration
rules of the American Arbitration Association and the decision reached by the
arbitrator shall be final and binding on the Parties hereto.
<PAGE>
EXHIBIT I TO THE
ALLOCATION SCHEDULE
SELLING AGENTS CURRENTLY OFFERING OMNIBUS SHARES
1. Merrill Lynch, Pierce, Fenner & Smith Incorporated
2. Core-Link
Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT, is made as of the 24th day of October, 1997, by and between
those Investment Companies on behalf of the Portfolios (individually referred to
herein as a "Fund" and collectively as "Funds") and Classes of Shares
("Classes") listed on Schedule A to Exhibit 1, as it may be amended from time to
time, having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
and Federated Securities Corp.("FSC"), a Pennsylvania Corporation, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS"). Each of the Exhibits hereto
is incorporated herein in its entirety and made a part hereof. In the event of
any inconsistency between the terms of this Agreement and the terms of any
applicable Exhibit, the terms of the applicable Exhibit shall govern.
1. FSC as Principal Servicer (Principal Servicer") hereby contracts with FSS
to render or cause to be rendered personal services to shareholders and/or
the maintenance of accounts of shareholders of each Class of the Funds to
which this Agreement is made applicable by an Exhibit hereto ("Services").
In addition to providing Services directly to shareholders of the Funds,
FSS is hereby appointed the Investment Companies' agent to select,
negotiate and subcontract for the performance of Services. FSS hereby
accepts such appointment. FSS agrees to provide or cause to be provided
Services which, in its best judgment (subject to supervision and control of
the Investment Companies' Boards of Trustees or Directors, as applicable),
are necessary or desirable for shareholders of the Funds. FSS further
agrees to provide the Investment Companies, upon request, a written
description of the Services which FSS is providing hereunder. The
Investment Companies, on behalf of the Funds and each Class subject hereto
consents to the appointment of FSS to act in its capacity as described
herein and agrees to look solely to FSS for performance of the Services.
2. The term of the undertaking of FSS to render services hereunder in respect
of any Class of any Fund and the manner and amount of compensation to be
paid in respect thereof shall be specified in respect of each Class of the
Funds to which this Agreement is made applicable by an Exhibit hereto. FSS
agrees to look solely to the Principal Servicer for its compensation
hereunder.
3. This Agreement shall become effective in respect of any Class of Shares of
a Fund upon execution of an Exhibit relating to such Class of the Fund.
Once effective in respect of any Class of shares, this Agreement shall
continue in effect for one year from the date of its execution, and
thereafter for successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each Investment
Company, including a majority of the members of the Board of the
Investment Company who are not interested persons of the Investment
Company ("Independent Board Members") cast in person at a meeting called
for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:
(a) By any Investment Company as to any Fund at any time, without the
payment of any penalty, by the vote of a majority of the Independent
Board Members of any Investment Company or by a vote of a majority of
the outstanding voting securities of any Fund as defined in the
Investment Company Act of 1940 on sixty (60) days' written notice to
the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Investment Company or
its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Investment Company in connection with the matters
to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance
of its duties or from reckless disregard by it of its obligations and
duties under this Agreement. FSS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for such Investment Company) on
all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FSS, who may be or become a
member of such Investment Company's Board, officer, employee or agent of
any Investment Company, shall be deemed, when rendering services to such
Investment Company or acting on any business of such Investment Company
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such
Investment Company and not as an officer, trustee, partner, employee or
agent or one under the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.
8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Investment Company that is a
Massachusetts business trust and agrees that the obligations assumed by
each such Investment Company pursuant to this Agreement shall be limited
in any case to such Investment Company and its assets and that FSS shall
not seek satisfaction of any such obligations from the shareholders of
such Investment Company, the Trustees, Officers, Employees or Agents of
such Investment Company, or any of them.
9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
<PAGE>
10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any
Investment Company at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the parties hereto. Nothing in this Section 13 shall
prevent FSS from delegating its responsibilities to another entity to the
extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
Investment Companies (listed on Schedule
A)
Attest: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT
Federated Shareholder Services
Attest:/S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
Federated Securities Corp.
Attest: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
<PAGE>
EXHIBIT 1
TO SHAREHOLDER SERVICES AGREEMENT
FOR CLASS B SHARES OF
THE INVESTMENT COMPANIES
1. The Shareholder Services Agreement for Shares of the Investment
Companies on behalf of the portfolios (individually referred to as a "Fund" and
collectively as "Funds") and the classes of shares ("Classes") listed on the
attached Schedule A dated October 24, 1997 among Federated Securities Corp.
("Principal Servicer"), Federated Shareholder Services ("Class Servicer") and
the Investment Companies is hereby made applicable on the terms set forth herein
to the Class B Shares of the above-referenced Funds. In the event of any
inconsistency between the terms of this Exhibit and the Shareholder Services
Agreement, the terms of this Exhibit shall govern.
2. In connection with the Services to be rendered to holders of Class B
Shares of each Fund, the Principal Servicer and Class Servicer agree that the
Principal Servicer shall retain and compensate the Class Servicer for its
Services in respect of the Class B Shares of the Fund on one of the following
alternative basis as the Principal Servicer shall elect:
ALTERNATIVE A3: The Principal Servicer shall pay the Class Servicer
a dollar amount as set forth on Schedule A per Class B Commission Share
(as defined in the Principal Shareholder Servicer's Agreement) of the
Fund. Class Servicer agrees that upon receipt of such payment (which shall
be deemed to be full and adequate consideration for an irrevocable service
commitment (the "Irrevocable Service Commitment") of Class Servicer
hereunder), Class Servicer shall be unconditionally bound and obligated to
either: (1) provide the Services in respect of such Commission Share and
all other Shares derived therefrom via reinvestment of dividends, free
exchanges or otherwise for so long as the same is outstanding or (2) in
the event the Class Servicer for the Class B Shares is terminated by the
Investment Company, to arrange for a replacement Class Servicer
satisfactory to the Investment Company to perform such services, at no
additional cost to the Fund.
ALTERNATIVE B4: If Alternative A is not elected, the Principal
Servicer shall pay the Class Servicer twenty five basis points (0.25%) per
annum on the average daily net asset value of each Class B Share of the
Fund monthly in arrears. The Class Servicer agrees that such payment is
full and adequate consideration for the Services to be rendered by it to
the holder of such Class B Share.
3. In the event pursuant to paragraph 2 above, Alternative A has been
elected and the Class Servicer is terminated as Class Servicer for the Class B
Shares of the Fund, the Class Servicer agrees to pay to any successor Class
Servicer for the Class B Shares of the Fund any portion of the excess, if any,
of (A) the Servicing Fees received by it hereunder in respect of Class B Shares
of the Fund plus interest thereon at the percent as set forth on Schedule A per
annum minus (B) the costs it incurred hereunder in respect of the Class B Shares
of the Fund prior to such termination.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year first
above written.
Attest: FEDERATED SECURITIES CORP.
By: /S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
Attest: FEDERATED SHAREHOLDER SERVICES
By:/S/ LESLIE K. PLATT By: /S/ BYRON F. BOWMAN
Title: ASSISTANT SECRETARY Title: VICE PRESIDENT
Attest: INVESTMENT COMPANIES
(listed on Schedule A)
By: /S/ S. ELLIOTT COHAN By: /S/ JOHN W. MCGONIGLE
Title: ASSISTANT SECRETARY Title: EXECUTIVE VICE PRESIDENT
<PAGE>
Schedule A
Date: 10/24/97 SHAREHOLDER SERVICES AGREEMENT
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
Exhibit 15 (iv) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit 1
Amendment to the
Distribution Plan for
the Investment Companies
Class B Shares
1. This amendment to the Distribution Plan, ("Plan") is adopted by the
Board of Trustees/Directors of the Investment Companies with respect to the
Class of Shares of the portfolios ("Funds") of the Investment Companies set
forth on the attached Schedule A as to which the Plan has been adopted. This
Exhibit is hereby incorporated into the Plan in its entirety and made a part
thereof. In the event of any inconsistency between the terms of this Exhibit and
the terms of the Plan, the terms of this Exhibit shall govern. References herein
to the Plan shall mean the Plan as amended by this Exhibit. The terms of the
Plan as amended when effective in respect of the Class of Shares set forth above
shall apply to all amounts payable to the Principal Distributor in respect of
such Class of Shares whether arising out of sales of such Class of Shares before
or after such effective date.
2. In compensation for the services provided pursuant to this Plan, the
Investment Companies on behalf of the Fund shall pay the Principal Distributor
its "Allocable Portion" (as defined in its Distributor's Contract as it relates
to the Class B Shares of the Fund) of a fee (the "Distribution Fee") computed at
the annual rate of 0.75 of 1% per annum on the average daily aggregate net asset
value of the Class B Shares of those Funds listed on Schedule A outstanding,
which fee shall be paid monthly in arrears.
3. The Distributor's Contract in respect of the Class B Shares of each
Fund set forth above shall provide that: (I) the Principal Distributor in
respect of such Distributor's Contract will be deemed to have performed all
services required to be performed in order to be entitled to receive its
Allocable Portion of the Distribution Fees payable in respect of the Class B
Shares of such Fund upon the settlement date of each sale of a "Commission
Share" (as defined below) of such Fund taken into account in determining such
Principal Distributor's Allocable Portion of such Distribution Fees; (II) the
Investment Companies' obligation to pay such Principal Distributor its Allocable
Portion of the Distribution Fees payable in respect of the Class B Shares of
such Fund shall not be terminated or modified for any reason (including a
termination of the Distributor's Contract between such Principal Distributor and
such Fund) except to the extent required by a change in the Act or the Conduct
Rules of the National Association of Securities Dealers, Inc., in each case
enacted or promulgated after May 1, 1997, or in connection with a "Complete
Termination" (as hereinafter defined) of this Plan in respect of the Class B
Shares of such Fund; (III) the Investment Companies will not take any action to
waive or change any CDSC in respect of the Class B Shares of such Fund, except
as provided in the Funds' prospectus or statement of additional information
without the consent of the Principal Distributor and its assigns; (IV) neither
the termination of such Principal Distributor's role as Principal Distributor of
the Class B Shares of such Fund, nor the termination of such Distributor's
Contract nor the termination of this Plan will terminate such Principal
Distributor's right to its Allocable Portion of the CDSCs; and (V) such
Principal Distributor may assign, sell or pledge (collectively, "Transfer") its
rights to its Allocable Portion of the Distribution Fees and CDSCs (but not such
Principal Distributor's obligations to the Investment Companies under the
Distributor's Contract) to raise funds to make the expenditures related to the
distribution of Class B Shares of such Fund and in connection therewith, upon
receipt of notice of such Transfer, the Investment Companies shall pay to the
assignee, purchaser or pledgee (collectively with their subsequent transferees,
"Transferees") or third party beneficiaries such portion of the Principal
Distributor's Allocable Portion of the Distribution Fees or CDSCs in respect of
the Class B Shares of such Fund so sold or pledged and except as provided in
(II) above and notwithstanding anything of the contrary set forth in this
Exhibit or the Plan or in the Distributor's Contract, to the extent the
Principal Distributor has Transferred its right thereto as aforesaid, the
Investment Companies' obligation to pay to the Principal Distributor's
Transferee such Principal Distributor's Allocable Portion of the Distribution
Fees and CDSCs payable in respect of the Class B Shares of such Fund shall be
absolute and unconditional and shall not be subject to dispute, offset,
counterclaim or any defense whatsoever, including without limitation, any of the
foregoing based on the insolvency or bankruptcy of the Principal Distributor (it
being understood that such provision is not a waiver of the Investment
Companies' right to pursue such Principal Distributor and enforce such claims
against the assets of such Principal Distributor other than its right to the
Distribution Fees, CDSCs and servicing fees, in respect of the Class B Shares of
any Fund transferred in connection with such Transfer. For purposes of this
Plan, the term Allocable Portion of Distribution Fees or CDSCs payable in
respect of the Class B Shares of any Fund as applied to any Principal
Distributor shall mean the portion of such Distribution Fees or CDSCs payable in
respect of such Fund allocated to such Principal Underwriter in accordance with
the Allocation Schedule (as defined in the Distributor's Contract as it relates
to the Class B Shares of the Fund)). For purposes of this Plan, the term
"Complete Termination" of this Plan in respect of any Fund means a termination
of this Plan involving the complete cessation of the payment of Distribution
Fees in respect of all Class B Shares of such Fund, and the termination of the
distribution plans and the complete cessation of the payment of distribution
fees pursuant to every other Distribution Plan pursuant to rule 12b-1 of the
Investment Companies in respect of such Fund and any successor Fund or any Fund
acquiring a substantial portion of the assets of such Fund and for every future
class of shares which has substantially similar characteristics to the Class B
Shares of such Fund taking into account the manner of payment and amount of
sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
Witness the due execution hereof this execution date.
Investment Companies (listed on Schedule A)
By: /S/ JOHN W. MCGONIGLE
Title: EXECUTIVE VICE PRESIDENT
Date: OCTOBER 24,1997
<PAGE>
Schedule A
Date: 10/24/97 DISTRIBUTION PLAN
FEDERATED AMERICAN LEADERS FUND, INC.
Class B Shares
FEDERATED EQUITY FUNDS
Federated Aggressive Growth Fund
Class B Shares
Federated Growth Strategies Fund
Class B Shares
Federated Small Cap Strategies Fund
Class B Shares
Federated Capital Appreciation Fund
Class B Shares
FEDERATED EQUITY INCOME FUND, INC.
Class B Shares
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
Class B Shares
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
Class B Shares
FEDERATED HIGH INCOME BOND FUND, INC.
Class B Shares
FEDERATED MUNICIPAL OPPORTUNITIES FUND, INC.
Class B Shares
FEDERATED MUNICIPAL SECURITIES FUND, INC.
Class B Shares
FEDERATED STOCK AND BOND FUND, INC.
Class B Shares
FEDERATED UTILITY FUND, INC.
Class B Shares
FIXED INCOME SECURITIES, INC.
Federated Strategic Income Fund
Class B Shares
INTERNATIONAL SERIES, INC.
Federated International Equity Fund
Class B Shares
Federated International Income Fund
Class B Shares
<PAGE>
INVESTMENT SERIES FUNDS, INC.
Federated Bond Fund
Class B Shares
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
Class B Shares
MUNICIPAL SECURITIES INCOME TRUST
Federated Pennsylvania Municipal Income Fund
Class B Shares
WORLD INVESTMENT SERIES, INC.
Federated World Utility Fund
Class B Shares
Federated Asia Pacific Growth Fund
Class B Shares
Federated Emerging Markets Fund
Class B Shares
Federated European Growth Fund
Class B Shares
Federated International Small Company Fund
Class B Shares
Federated Latin American Growth Fund
Class B Shares
Federated International High Income Fund
Class B Shares
Federated International Growth Fund
Class B Shares
The following Funds were added as of DECEMBER 1, 1997:
Municipal Securities Income Trust
Federated California Municipal Income Fund
Class B Shares
World Investment Series, Inc.
Federated Global Equity Income Fund
Class B Shares
