LIBERTY UTILITY FUND INC, 485BPOS, 1995-05-24

LIBERTY UTILITY FUND INC
485BPOS, 1995-05-24

Previous: SANDERSON FARMS INC, 10-Q, 1995-05-24

Next: GRADISON CUSTODIAN TRUST, 497, 1995-05-24

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. 13 X__

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 17 X

LIBERTY UTILITY FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on May 31, 1995 pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on April 13, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.

Copies to:

Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of LIBERTY UTILITY FUND,
INC., consisting of three classes of shares: (1) Class A Shares; (2) Class B
Shares; and (3) Class C Shares is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
Rule 404(c) Cross Reference)

Item 1. Cover Page (1-3) Cover Page.
Item 2. Synopsis (1-3) Synopsis; (1-3) Summary of
Fund Expenses.
Item 3. Condensed Financial
Information (1-3) Financial Highlights
Item 4. General Description of
Registrant (1-3) Performance Information;
General Information; Liberty Family
of Funds; Investment Information;
Investment Objectives; Investment
Policies; Investment Risks;
Investment Limitations; (1,3)
Federated LifeTrack Program.
Item 5. Management of the Fund (1-3) Fund Information; Management
of the Fund; Distribution of
Shares; Administration of the Fund;
Brokerage Transactions.
Item 6. Capital Stock and Other
Securities (1-3) Shareholder Information;
Voting Rights; Tax Information;
Federal Income Tax; Pennsylvania
Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered (1-3) Net Asset Value; Investing in
the Fund; (1) Investing in Class A
Shares; (2) Investing in Class B
Shares; (3) Investing in Class C
Shares; (1-3) Exchange Privilege.
Item 8. Redemption or Repurchase (1-3) How to Redeem Shares; Special
Redemption Features; Contingent
Deferred Sales Charge; Elimination
of Contingent Deferred Sales
Charge; Account and Share
Information.
Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About the Fund.
Item 13. Investment Objectives and
Policies Investment Objectives and Policies.
Item 14. Management of the Fund Liberty Utility Fund, Inc.
Management.
Item 15. Control Persons and Principal
Holders of Securities Directors Compensation.
Item 16. Investment Advisory and Other
Services Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchasing Shares; Determining Net
Asset Value; Redeeming Shares.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Distribution and Shareholder
Services Plans.
Item 22. Calculation of Performance
Data Total Return; Yield; Performance
Comparisons.
Item 23. Financial Statements Incorporated by reference to Annual
Report of Registrant dated February
28, 1995 (File Nos. 33-13388 and
811-5114).

LIBERTY UTILITY FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

COMBINED PROSPECTUS

The shares of Liberty Utility Fund, Inc. (the "Fund") offered by this prospectus
represent interests in the Fund which is an open-end, diversified management
investment company (a mutual fund).

The Fund invests in a diversified portfolio comprised primarily of equity
securities to achieve current income and long-term growth of income. Capital
appreciation is a secondary objective.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.

The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated May 31, 1995, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1995

--------------------------------------------------------------------------------
TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1

Financial Highlights...........................................................4

Synopsis.......................................................................7

Liberty Family of Funds........................................................8
Federated LifeTrack(TM) Program
(Class A Shares and Class C Shares).......................................9

Investment Information........................................................10
Investment Objectives.......................................................10
Investment Policies.........................................................10
Investment Risks............................................................12
Investment Limitations......................................................15

Net Asset Value...............................................................17

Investing in the Fund.........................................................17

How To Purchase Shares........................................................18

Investing in Class A Shares...................................................19
Reducing or Eliminating
the Sales Load...........................................................20
Special Purchase Features...................................................22

Exchange Privilege............................................................23

How To Redeem Shares..........................................................25
Special Redemption Features.................................................26
Contingent Deferred Sales Charge............................................27
Elimination of Contingent
Deferred Sales Charge....................................................28

Account and Share Information.................................................29

Fund Information..............................................................30
Management of the Fund......................................................30
Distribution of Shares......................................................31
Administration of the Fund..................................................32
Brokerage Transactions......................................................33

Shareholder Information.......................................................34
Voting Rights...............................................................34

Tax Information...............................................................34
Federal Income Tax..........................................................34
Pennsylvania Personal Property Taxes........................................34

Performance Information.......................................................35

--------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
LIBERTY UTILITY FUND, INC.
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...................................... 5.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)...................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................... None
Exchange Fee..................................................................................................... None

ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................ 0.58%
12b-1 Fee........................................................................................................ None
Total Other Expenses............................................................................................. 0.56%
Shareholder Services Fee (after waiver) (3)....................................................... 0.24%
Total Class A Shares Operating Expenses (4)............................................................. 1.14%

</TABLE>

(1) Class A Shares purchased shares with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or sold with a sales load
and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. (See "Contingent Deferred Sales Charge").

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.75%.

(3) The maximum shareholder services fee is 0.25%.

(4) The total Class A Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending February 28, 1996. The
total Class A Shares operating expenses were 1.10% for the fiscal year
ended February 28, 1995, and were 1.31% absent the voluntary waiver of a
portion of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class A Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.......................................................... $71 $89 $114 $186
You would pay the following expenses on the same investment,
assuming no redemption....................................................... $66 $89 $114 $186
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

--------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
LIBERTY UTILITY FUND, INC.
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)....................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)................................................ None
Exchange Fee...................................................................................................... None

ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................. 0.58%
12b-1 Fee......................................................................................................... 0.75%
Total Other Expenses.............................................................................................. 0.57%
Shareholder Services Fee........................................................................... 0.25%
Total Class B Shares Operating Expenses (3)(4)............................................................ 1.90%

</TABLE>

(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").

(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(4) The total Class B Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending February 28, 1996. The total
Class B Shares operating expenses were 1.87% for the fiscal year ended
February 28, 1995 and were 2.12% absent the voluntary waiver of a portion of
the management fee.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS B SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS B SHARES" AND "FUND INFORMATION".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period............................................................ $76 $104
You would pay the following expenses on the same investment, assuming no redemption.................. $19 $60
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

--------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES
LIBERTY UTILITY FUND, INC.
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)....................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)................................................ None
Exchange Fee...................................................................................................... None

ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................. 0.58%
12b-1 Fee......................................................................................................... 0.75%
Total Other Expenses.............................................................................................. 0.52%
Shareholder Services Fee (3)....................................................................... 0.20%
Total Class C Shares Operating Expenses (4)............................................................... 1.85%

</TABLE>

(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge".

(3) The maximum shareholder services fee is 0.25%.

(4) The total Class C Shares operating expenses in the table above are based on
expenses expected during the fiscal year ending February 28, 1996. The total
Class C Shares operating expenses were 1.86% for the fiscal year ended
February 28, 1995, and were 2.07% absent the voluntary waiver of a portion
of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class C Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class C Shares" and "Fund Information".
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period........... $29 $58 $100 $217
You would pay the following expenses on the same investment, assuming no
redemption....................................................................... $19 $58 $100 $217
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
LIBERTY UTILITY FUND, INC.
--------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated April 18, 1995, on the Fund's
financial statements for the year ended February 28, 1995, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28, OR 29,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988(a)
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15 $ 9.15 $ 9.30
----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
Net investment income 0.55 0.60 0.58 0.68 0.71 0.71 0.72 0.55
----------------------------------------
Net realized and unrealized gain (loss)
on investments (0.69) -- 1.44 0.92 0.43 0.79 (0.02) (0.31)
---------------------------------------- --------- --------- --------- --------- --------- --------- --------- -----
Total from investment operations (0.14) 0.60 2.02 1.60 1.14 1.50 0.70 0.24
----------------------------------------
LESS DISTRIBUTIONS
----------------------------------------
Distributions from net investment
income (0.66) (0.61) (0.66) (0.64) (0.70) (0.76) (0.70) (0.39)
----------------------------------------
Distributions from net realized gain
on investment transactions (0.12) (0.04) (0.10) (0.06) (0.13) (0.07) -- --
----------------------------------------
Tax return of capital distribution (0.34) -- -- -- -- -- -- --
---------------------------------------- --------- --------- --------- --------- --------- --------- --------- -----
Total distributions (1.12) (0.65) (0.76) (0.70) (0.83) (0.83) (0.70) (0.39)
---------------------------------------- --------- --------- --------- --------- --------- --------- --------- -----
NET ASSET VALUE, END OF PERIOD $ 10.98 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15 $ 9.15
---------------------------------------- --------- --------- --------- --------- --------- --------- --------- -----
TOTAL RETURN(B) (0.98%) 4.93% 19.26% 16.48% 12.41% 16.72% 8.00% 3.25%
----------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------
Expenses 1.10% 1.12% 1.04% 1.05% 1.02% 1.02% 1.00% 1.56%(c)
----------------------------------------
Net investment income 4.95% 4.81% 5.98% 6.31% 7.41% 7.17% 8.04% 8.24%(c)
----------------------------------------
Expense waiver/reimbursement (d) 0.21% 0.17% 0.01% 0.19% 0.51% 0.74% 0.40% 0.38%(c)
----------------------------------------
SUPPLEMENTAL DATA
----------------------------------------
Net assets, end of period (000 omitted) $742,274 $877,513 $739,511 $375,656 $125,599 $48,050 $410,575 $52,947
----------------------------------------
Portfolio turnover 55% 24% 18% 35% 45% 37% 34% 17%
----------------------------------------
</TABLE>

(a) Reflects operations for the period from June 5, 1987 (date of initial
public investment) to February 29, 1988.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1995, which can be obtained free of charge.

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
LIBERTY UTILITY FUND, INC.
--------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated April 18, 1995, on the Fund's
financial statements for the year ended February 28, 1995, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.

<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
<S> <C>
1995(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.92
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------------------------------------------------------------------
Net investment income 0.22
----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.04)
---------------------------------------------------------------------------------------------------- -------
Total from investment operations 0.18
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
----------------------------------------------------------------------------------------------------
Distributions from net investment income (0.08)
----------------------------------------------------------------------------------------------------
Tax return of capital distribution (0.04)
---------------------------------------------------------------------------------------------------- -------
Total distributions (0.12)
---------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.98
---------------------------------------------------------------------------------------------------- -------
TOTAL RETURN(B) 2.16%
----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
----------------------------------------------------------------------------------------------------
Expenses 1.87%(c)
----------------------------------------------------------------------------------------------------
Net investment income 4.53%(c)
----------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.25%(c)
----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 18,780
----------------------------------------------------------------------------------------------------
Portfolio turnover 55%
----------------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 12, 1994 (date of initial
public investment) to February 28, 1995.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1995, which can be obtained free of charge.

--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
LIBERTY UTILITY FUND, INC.
--------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1995 1994(a)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.23 $ 12.27
-------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------------
Net investment income 0.42 0.48
-------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.64) (0.07)
------------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations (0.22) 0.41
-------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------------------------------------------
Distributions from net investment income (0.60) (0.41)
-------------------------------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.13) (0.04)
-------------------------------------------------------------------------------------------------
Tax return of capital distribution (0.30) --
------------------------------------------------------------------------------------------------- --------- -----------
Total distributions (1.03) (0.45)
------------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.98 $ 12.23
------------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN(B) (1.66)% 3.28%
-------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------------
Expenses 1.86% 1.87%(c)
-------------------------------------------------------------------------------------------------
Net investment income 4.19% 4.02%(c)
-------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.21% 0.17%(c)
-------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 58,800 $ 64,409
-------------------------------------------------------------------------------------------------
Portfolio turnover 55% 24%
-------------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from April 30, 1993 (date of initial
public investment) to February 28, 1994.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1995, which can be obtained free of charge.

--------------------------------------------------------------------------------

SYNOPSIS

The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. From the date of the Fund's initial public offering in 1987 until May 27,
1988, the Fund was operated as a closed-end investment company. On May 16, 1988,
the shareholders of the Fund approved the conversion of the Fund from a
closed-end investment company to an open-end investment company. Shareholders of
the Fund, at a meeting held January 18, 1990, approved the Fund's name change
from Progressive Income Equity Fund, Inc. to Liberty Utility Fund, Inc. The
Fund's address is Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Articles of Incorporation permit the Fund to offer separate
series of shares representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. With respect
to the Fund, as of the date of this prospectus, the Board of Directors (the
"Directors") has established three classes of shares, known as Class A Shares,
Class B Shares and Class C Shares (individually and collectively as the context
requires, "Shares").

Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities.

For information on how to purchase Shares of the Fund, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares is $500. The
minimum initial investment for Class B Shares and Class C Shares is $1500.
However, the minimum initial investment for a retirement account in any class is
$50. Subsequent investments in any class must be in amounts of at least $100,
except for retirement plans which must be in amounts of at least $50.

Class A Shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge is
imposed under certain circumstances. For a more complete description, see "How
to Redeem Shares."

Class B Shares are sold at net asset value and are redeemed at net asset value.
However, a contingent deferred sales charge is imposed on certain Shares which
are redeemed within six full years of purchase. See "How to Redeem Shares."

Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase. See "How to Redeem Shares."

In addition, the Fund also pays a shareholder services fee at an annual rate not
to exceed 0.25% of average daily net assets.

Additionally, information regarding the exchange privilege offered with respect
to the Fund and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."

Passport Research, Ltd. is the investment adviser (the "Adviser") to the Fund
and receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.

Investors should be aware of the following general observations. The Fund may
make certain investments and employ certain investment techniques that involve
risks, including entering into repurchase agreements, lending portfolio
securities, investing in restricted and illiquid securities, investing in
when-issued and delayed delivery securities, selling or writing call options and
investing in foreign securities. In addition,

utility securities have special risk considerations. These risks are described
under "Investment Policies."

The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Federated Liberty."

--------------------------------------------------------------------------------
LIBERTY FAMILY OF FUNDS

This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:

American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;

Capital Growth Fund, providing appreciation of capital primarily through equity
securities;

Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;

International Equity Fund, providing long-term capital growth and income
through international securities;

International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;

Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;

Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated, corporate bonds;

Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;

Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;

Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal through investment grade securities;

Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;

Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and personal income taxes imposed by the state of
Michigan and Michigan municipalities, primarily through Michigan municipal
securities;

Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;

Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with the
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and

World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.

Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.

FEDERATED LIFETRACK(TM) PROGRAM (CLASS A SHARES AND CLASS C SHARES)

The Fund is also a member of the Federated LifeTrack(TM) Program sold through
financial representatives. The Federated LifeTrack(TM) Program is an integrated
program of investment options, plan recordkeeping, and consultation services for
401(k) and other participant-directed benefit and savings plans. Under the
Federated LifeTrack(TM) Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Federated
LifeTrack(TM) Program for recordkeeping and administrative services. Additional
fees are charged to participating plans for these services. As part of the
Federated LifeTrack(TM) Program, exchanges may readily be made between
investment options selected by the employer or a plan trustee.

Other funds participating in the Federated LifeTrack(TM) Program are: American
Leaders Fund, Inc., Capital Growth Fund, Capital Preservation Fund, Fund for
U.S. Government Securities, Inc., International Equity Fund, International
Income Fund, Liberty Equity Income Fund, Inc., Liberty High Income Bond Fund,
Inc., Prime Cash Series, Stock and Bond Fund, Inc., and Strategic Income Fund.

With respect to Class A Shares, no sales load is imposed on purchases made by
qualified retirement plans with over $l million invested in funds participating
in the Federated LifeTrack(TM) Program.

--------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVES

The primary investment objectives of the Fund are current income and long-term
growth of income. Capital appreciation is a secondary objective. While there is
no assurance that the Fund will achieve its investment objectives, it endeavors
to do so by following the policies described in this prospectus. The investment
objectives cannot be changed without approval of shareholders.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The Fund will seek to achieve its investment objectives by investing primarily
in common stocks, preferred stocks, units of participation in master limited
partnerships which are traded on national securities exchanges, securities
convertible into stock, and debt securities issued by companies in the utilities
industry. Under normal conditions, with respect to 65% of its assets, the Fund
will invest in utility companies that derive 50% of their revenues from
utilities or assets relating to utility industries. Securities issued by
companies in the utilities industry include companies engaged in the production,
transmission or distribution of electric energy or gas, or in communications
facilities such as telephone or telegraph services.

Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or (ii) determined by the Adviser to be
of investment grade and not rated by either of the aforementioned rating
services, or (iii) the subordinated debt of

issuers whose senior debt obligations are deemed to be investment grade by
either of the aforementioned rating services. These subordinated debt securities
may be unrated or rated below investment grade by Moody's Investors Service,
Inc. or Standard and Poor's Ratings Group. Securities rated in the lowest
category of investment grade have speculative characteristics. Changes in
economic or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. The prices of
fixed income securities fluctuate inversely to the direction of interest rates.

For temporary or defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its agencies
or instrumentalities, commercial paper rated not lower than A-1 by S&P or
Prime-1 by Moody's or repurchase agreements.

The investment policies described above cannot be changed without shareholder
approval.

Downgraded securities will be evaluated on a case by case basis by the Adviser.
The Adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold. The Directors do not
consider this limitation to apply to debt securities of an issuer convertible
into stock of that issuer.

REPURCHASE AGREEMENTS

Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Fund, the Fund could
receive less than the repurchase price on any sale of such securities.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend its portfolio
securities, on a short-term or long-term basis, to broker/dealers, banks, or
other institutional borrowers of securities. The Fund will limit the amount of
portfolio securities it may lend to not more than one-third of its total assets.
The Fund will only enter into loan arrangements with broker/dealers, banks, or
other institutions which the Adviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in cash or
United States government securities that will be maintained in an amount equal
to at least 100% of the current market value of the securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest up to 10% of its total assets in restricted securities.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objectives and policies but which are subject to
restriction on resale under federal securities law. To the extent these
securities are deemed to be illiquid, the Fund will limit its purchases together
with other securities considered to be illiquid to 15% of its net assets.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.

COVERED CALL OPTIONS

The Fund may also write call options on all or any portion of its portfolio to
generate income for the Fund. Call options written by the Fund give the holder
the right to buy the underlying securities of the Fund at the stated exercise
price. The Fund will write call options only on securities either held in its
portfolio, or for which it has the right to obtain without payment of further
consideration, or for which it has segregated cash in the amount of any
additional consideration. The call options which the Fund writes and sells must
be listed on a recognized options exchange. The Fund's investment in call
options shall not exceed 5% of the Fund's total assets.

SECURITIES OF FOREIGN ISSUERS

The Fund may purchase American Depository Receipts ("ADRs") issued by U.S. Banks
as a substitute for direct ownership of securities of foreign companies in the
utilities industry. ADRs are traded in the United States on stock exchanges and
in the over-the-counter markets like stocks of domestic companies.

INVESTMENT RISKS

The Fund will attempt to meet its investment objectives by being at least 65%
invested in securities issued by companies in the domestic and foreign utilities
industries. There are certain risks associated with the utilities industries and
with foreign securities of which investors in the Fund should be aware.

CONSIDERATIONS OF UTILITY SECURITIES

There are certain risks and considerations affecting utility companies, and the
holders of utility company securities, which an investor should take into
account when investing in those securities. Factors which may adversely affect
utility companies include: difficulty in financing large construction programs
during inflationary periods; technological innovations which may cause existing
plants, equipment, or products to become less competitive or obsolete; the
impact of natural or man-made disasters (especially on regional utilities);
increased costs or reductions in production due to the unavailability of
appropriate types of fuel; seasonally or occasionally reduced availability or
higher cost of natural gas; and reduced demand due to energy conservation among
consumers. The revenues of domestic and foreign utility companies generally
reflect the economic growth and developments in the geographic areas in which
they do business. Furthermore, utility securities tend to be interest rate
sensitive.

In addition, most utility companies in the United States and in foreign
countries are subject to government regulation. Generally, the purpose of such
regulation is to ensure desirable levels of service and adequate capacity to
meet public demand. To this end, prices are often regulated to enable consumers
to obtain service at what is perceived to be a fair price, while attempting to
provide utility companies with a rate of return sufficient to attract capital
investment necessary for continued operation and necessary growth. Recently,
utility regulators have permitted utilities to diversify outside of their
original geographic regions and their traditional lines of business. While the
Adviser believes that these opportunities will permit certain utility companies
to earn more than their traditional regulated rates of return, other companies
may be forced to defend their core business and may be less profitable. Of
course, there can be no assurance that all of the regulatory policies described
in this paragraph will continue in the future.

In addition to the effects of regulation described in the previous paragraph,
utility companies may also be adversely affected by the following regulatory
considerations: the development and implementation of a national energy policy;
the differences between regulatory policies of different jurisdictions (or
different regulators which have concurrent jurisdiction); shifts in regulatory
policies; adequacy of rate increases; and future regulatory legislation.

Foreign utility companies may encounter different risks and opportunities than
those located in the United States. Foreign utility companies may be more
heavily regulated than their United States counterparts. Many foreign utility
companies currently use fuels which cause more pollution than fuels used by
United States utilities; in the future, it may be necessary for such foreign
utility companies to invest heavily in pollution control equipment or otherwise
meet pollution restrictions. Rapid growth in certain foreign economies may
encourage the growth of utility industries in those countries. Although many
foreign utility companies are currently government-owned, the Adviser believes
that it is likely that some foreign governments will seeks "privatize" their
utility companies, i.e., transfer ownership to private investors.

In addition to the foregoing considerations which affect most utility companies,
there are specific considerations which affect specific utility industries:

ELECTRIC

The electric utility industry is made up of companies that are engaged in the
generation, transmission, and sale of electric energy. Domestic electric utility
companies have generally been favorably affected by lower fuel and financing
costs and the completion of major construction programs. Some electric utilities
are able to sell power outside of their traditional geographic areas. Electric
utility companies have historically been subject to increases in fuel and other
operating costs, high interest costs on borrowings needed for capital
construction programs, compliance with environmental and safety regulations, and
changes in the regulatory climate.

In the United States, the construction and operation of nuclear power facilities
is subject to a high degree of regulatory oversight by the Nuclear Regulatory
Commission and state agencies with concurrent jurisdiction. In addition, the
design, construction, licensing, and operation of nuclear power facilities are
often subject to lengthy delays and unanticipated costs due to changes in
regulatory policy, regional political actions, and lawsuits. Furthermore, during
rate authorizations, utility regulators may disallow the inclusion in electric
rates of the higher operating costs and expenditures resulting from these delays
and unanticipated costs, including the costs of a nuclear facility which a
utility company may never be able to use.

TELECOMMUNICATIONS

The telephone industry is large and highly concentrated. The greatest portion of
this segment is comprised of companies which distribute telephone services and
provide access to the telephone networks. While many telephone utility companies
have diversified into other businesses in recent years, the profitability of
telephone utility companies could be adversely affected by increasing
competition, technological innovations, and other structural changes in the
industry.

Cable television companies are typically local monopolies, subject to scrutiny
by both utility regulators and municipal governments. Emerging technologies and
legislation encouraging local competition are combining to threaten these
monopolies and may slow future growth rates of these companies. The radio
telecommunications segment of this industry, including cellular telephone, is in
its early developmental phases and is characterized by emerging, rapidly growing
companies.

GAS

Gas transmission and distribution companies are undergoing significant changes.
In the United States, the Federal Energy Regulatory Commission is reducing its
regulation of interstate transmission of gas. While gas utility companies have
in the recent past been adversely affected by disruptions in the oil industry,
increased concentration, and increased competition, the Adviser believes that
environmental considerations should benefit the gas industry in the future.

WATER

Water utility companies purify, distribute, and sell water. This industry is
highly fragmented because most of the water supplies are owned by local
authorities. Water utility companies are generally mature and are experiencing
little or no per capita volume growth. The Adviser believes that favorable
investment opportunities may result if anticipated consolidation and foreign
participation in this industry occurs.

REDUCING RISKS OF UTILITY SECURITIES

The Adviser believes that the risks of investing in utility securities can be
reduced. The professional portfolio management techniques used by the Fund to
attempt to reduce these risk include credit research and diversification
techniques. The Adviser will perform its own credit analysis in addition to
using recognized rating agencies and other sources, including discussions with
the issuer's management, the judgment of other investment analysts, and its own
informed judgment. The Adviser's credit analysis will consider the issuer's
financial soundness, its responsiveness to changes in interest rates and
business conditions, and its anticipated cash flow, interest or dividend
coverage, and earnings. In evaluating an issuer, the Adviser places special
emphasis on the estimated current value of the issuer's assets rather than
historical costs.

SECURITIES OF FOREIGN ISSUERS

Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce some of these
risks, the Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries.

The Fund occasionally takes advantage of the unusual opportunities for higher
returns available from investing in developing countries. These investments,
however, carry considerably more volatility and risk because they are associated
with less mature economies and less stable political systems.

EXCHANGE RATES

Foreign securities are denominated in foreign currencies. Therefore, the value
in U.S. dollars of the Fund's assets and income may be affected by changes in
exchange rates and regulations.

Although the Fund values its assets daily in U.S. dollars, it will not convert
its holding of foreign currencies to U.S. dollars daily.

When the Fund converts its holdings to another currency, it may incur conversion
costs. Foreign exchange dealers realize a profit on the difference between the
prices at which they buy and sell securities.

FOREIGN COMPANIES

Other differences between investing in foreign and U.S. companies include:

less publicly available information about foreign companies;

the lack of uniform financial accounting standards applicable to foreign
companies;

less readily available market quotations on foreign companies;

differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;

generally lower foreign stock market value;

the likelihood that foreign securities may be less liquid or more volatile;

foreign brokerage commissions may be higher;

unreliable mail service between countries; and

political or financial changes which adversely affect investments in some
countries.

U.S. GOVERNMENT POLICIES

In the past, U.S. government policies have discouraged or restricted certain
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:

invest more than 25% of its total assets (valued at time of investment) in
securities of companies engaged principally in any one industry other than the
utilities industry, except that this restriction does not apply to cash or cash
items and securities issued or guaranteed by the United States government or
its agencies or instrumentalities;

invest more than 5% of the value of its total assets in securities of
companies, including their predecessors, which have been in operation for less
than three years;

invest more than 5% of its total assets (valued at the time of investment) in
the securities of any one issuer, except that this restriction does not apply
to cash and cash items, repurchase agreements, and securities issued or
guaranteed by the United States government or its agencies or
instrumentalities;

acquire more than 10% of the outstanding voting securities of any one issuer
(at the time of acquisition);

borrow money, issue senior securities, or pledge assets, except that under
certain circumstances the Fund may borrow money and engage in reverse
repurchase transactions in amounts up to one-third of the value of its net
assets, including the amounts borrowed, and pledge up to 10% of the value of
those assets to secure such borrowings. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure to facilitate management of
the

portfolio by enabling the Fund to meet redemption requests when the liquidation
of portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while any such borrowings are
outstanding. However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the expiration
date of the reverse repurchase agreements;

lend any of its assets except portfolio securities up to one-third of the value
of its total assets. This shall not prevent the purchase or holding of
corporate bonds, debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objectives and policies;

write call options on securities unless the securities are held in the Fund's
portfolio or unless the Fund is entitled to them in deliverable form without
further payment or after segregating cash in the amount of any further payment.
The Fund's investment in put or call options, straddles, spreads, or any
combination thereof shall not exceed 5% of the Fund's total assets;

invest more than 5% of its net assets in warrants, not more than 2% of which
can be warrants not listed on recognized exchanges; or

invest more than 15% of total assets in securities of foreign issuers not
listed on recognized exchanges.

If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes in
value or in the number of outstanding securities of an issuer will not be
considered a violation.

--------------------------------------------------------------------------------
NET ASSET VALUE

The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of each class of Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of each
class of Shares in the liabilities of the Fund and those attributable to each
class of Shares, and dividing the remainder by the total number of each class of
Shares outstanding. The net asset value for each class of Shares may differ due
to the variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular class
are entitled.

The net asset value of each class of Shares of the Fund is determined at 4:00
p.m. (Eastern time), Monday through Friday, except on: (i) days on which there
are not sufficient changes in the value of the Fund's portfolio securities that
it's net asset value might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; or (iii) the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.

--------------------------------------------------------------------------------
INVESTING IN THE FUND

The Fund offers investors three classes of Shares that carry sales loads and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses.

CLASS A SHARES

An investor who purchases Class A Shares pays a maximum sales load of 5.50% at
the time of purchase. As a result, Class A Shares are not subject to any charges
when they are redeemed (except for special programs offered under "Purchases
with Proceeds From Redemptions of Unaffiliated Investment Companies.") Certain
purchases of Class A Shares qualify for reduced sales loads. See "Reducing or
Eliminating the Sales Load." Class A Shares have no conversion feature.

CLASS B SHARES

Class B Shares are sold without an initial sales load, but are subject to a
contingent deferred sales charge of up to 5.50% if redeemed within six full
years following purchase. Class B Shares also bear a higher 12b-1 fee than Class
A Shares. Class B Shares will automatically convert into Class A Shares, based
on relative net asset value, on or around the fifteenth of the month eight full
years after the purchase date. Class B Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but (until conversion) will have a higher expense ratio and pay lower
dividends than Class A Shares due to the higher 12b-1 fee.

CLASS C SHARES

Class C Shares are sold without an initial sales load, but are subject to a
1.00% contingent deferred sales charge on assets redeemed within the first 12
months following purchase. Class C Shares provide an investor the benefit of
putting all of the investor's dollars to work from the time the investment is
made, but will have a higher expense ratio and pay lower dividends than Class A
Shares due to the higher 12b-1 fee. Class C Shares have no conversion feature.

--------------------------------------------------------------------------------
HOW TO PURCHASE SHARES

Shares of the Fund are sold on days on which the New York Stock Exchange is
open. Shares of the Fund may be purchased as described below, either through a
financial institution (such as a bank or broker/dealer which has a sales
agreement with the distributor) or by wire or by check directly to the Fund,
with a minimum initial investment of $500 for Class A Shares and $1,500 for
Class B Shares and Class C Shares. Additional investments can be made for as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50. (Financial institutions may impose different minimum
investment requirements on their customers.)

In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Fund before Shares can be purchased.

--------------------------------------------------------------------------------

INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales load as follows:

<TABLE>
<CAPTION>
DEALER
SALES LOAD SALES LOAD CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
AMOUNT OF OFFERING AMOUNT OFFERING
TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
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%*
</TABLE>

*See sub-section entitled "DEALER CONCESSION."

No sales load is imposed for Class A Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or to shareholders designated as Liberty Life Members. However,
investors who purchase Shares through a trust department, investment adviser, or
retirement plan may be charged an additional service fee by the institution.
Additionally, no sales load is imposed for Class A Shares purchased through
"wrap accounts" or similar programs, under which clients pay a fee or fees for
services.

No sales load is imposed on purchases made by retirement plans with over $1
million invested in funds available through the Federated LifeTrack(TM) Program.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales load. Any portion of the sales load 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 load 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 load; 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 load for Shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the bank's customers in connection with the
initiation of customer accounts and purchases of Shares.

Effective June 1, 1995, and until further notice, the entire amount of the
applicable sales load will be reallowed to dealers. In addition, the distributor
will pay dealers additional bonus payments in an amount equal to 0.50 of 1% of
the public offering price of Shares sold.

REDUCING OR ELIMINATING THE
SALES LOAD

The sales load can be reduced or eliminated on the purchase of Class A Shares
through:

quantity discounts and accumulated purchases;

concurrent purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

As shown in the table above, larger purchases reduce the sales load paid. The
Fund will combine purchases of Class A Shares made on the same day by the
investor, the investor's spouse, and the investor's children under age 21 when
it calculates the sales load. In addition, the sales load, if applicable, is
reduced for purchases made at one time by a trustee or fiduciary for a single
trust estate or a single fiduciary account.

If an additional purchase of Class A Shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns Class A Shares having a current value at the public offering price
of $90,000 and he purchases $10,000 more at the current public offering price,
the sales load on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.

To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Class A Shares are already owned or that purchases are
being combined. The Fund will reduce the sales load after it confirms the
purchases.

CONCURRENT PURCHASES

For purposes of qualifying for a sales load reduction, a shareholder has the
privilege of combining concurrent purchases of two or more funds in the Liberty
Family of Funds, the purchase price of which includes a sales load. For example,
if a shareholder concurrently invested $30,000 in one of the other funds in the
Liberty Family of Funds with a sales load, and $20,000 in this Fund, the sales
load would be reduced.

To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales load
after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $50,000 of shares of the funds in
the Liberty Family of Funds (excluding money market funds) over the next 13
months, the sales load may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales load adjustment
depending on the amount actually purchased within the 13-month period and a
provision for the custodian to hold up to 5.50% of the total amount intended to
be purchased in escrow (in shares) until such purchase is completed.

The Shares held in escrow in the shareholder's account will be released upon the
fulfillment of the letter of intent or the end of the 13-month period, whichever
comes first. If the amount specified in the letter of intent is not purchased,
an appropriate number of escrowed Shares may be redeemed in order to realize the
difference in the sales load.

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales load applicable to
the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any fund in
the Liberty Family of Funds, excluding money market accounts, will

be aggregated to provide a purchase credit towards fulfillment of the letter of
intent. Prior trade prices will not be adjusted.

REINVESTMENT PRIVILEGE

If Class A Shares in the Fund have been redeemed, the shareholder has the
privilege within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales load. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales load. If the
shareholder redeems his Class A Shares in the Fund, there may be tax
consequences.

PURCHASES WITH PROCEEDS FROM
REDEMPTIONS OF UNAFFILIATED
INVESTMENT COMPANIES

Investors may purchase Class A Shares at net asset value, without a sales load,
with the proceeds from the redemption of shares of an unaffiliated investment
company that were purchased or sold with a sales load or commission and were not
distributed by Federated Securities Corp. The purchase must be made within 60
days of the redemption, and Federated Securities Corp. must be notified by the
investor in writing, or by his financial institution, at the time the purchase
is made. From time to time, the Fund may offer dealers a payment of .50 of 1.00%
for Shares purchased under this program. If Shares are purchased in this manner,
Fund purchases will be subject to a contingent deferred sales charge for one
year from the date of purchase. Shareholders will be notified prior to the
implementation of any special offering as described above.

INVESTING IN CLASS B SHARES

Class B Shares are sold at their net asset value next determined after an order
is received. While Class B Shares are sold without an initial sales load, under
certain circumstances described under "Contingent Deferred Sales Charge--Class B
Shares," a contingent deferred sales charge may be applied by the distributor at
the time Class B Shares are redeemed.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A Shares,
Shares purchased through the reinvestment of dividends and distributions paid on
Class B Shares will be considered to be held in a separate sub-account. Each
time any Class B Shares in the shareholder's account (other than those in the
sub-account) convert to Class A Shares, an equal pro rata portion of the Class B
Shares in the sub-account will also convert to Class A Shares. The conversion of
Class B Shares to Class A Shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel that such
conversions will not constitute taxable events for federal tax purposes. There
can be no assurance that such ruling or opinion will be available, and the
conversion of Class B Shares to Class A Shares will not occur if such ruling or
opinion is not available. In such event, Class B Shares would continue to be
subject to higher expenses than Class A Shares for an indefinite period.

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

INVESTING IN CLASS C SHARES

Class C Shares are sold at net asset value next determined after an order is
received. A contingent deferred sales charge of 1.00% will be charged on assets
redeemed within the first full 12 months following purchase. For a complete
description of this charge see "Contingent Deferred Sales Charge--Class C
Shares."

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.

The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by wire by calling
the Fund. All information needed will be taken over the telephone, and the order
is considered received when State Street Bank receives payment by wire. Federal
funds should be wired as follows: State Street Bank and Trust Company, Boston,
MA; Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund Number);
Account Number; Trade Date and Order Number; Group Number or Dealer Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted.

PURCHASING SHARES BY CHECK

Once an account has been established, Shares may be purchased by sending a check
made payable to the name of the Fund (designate class of Shares and account
number) to: Federated Services Company, P.O. Box 8600, Boston, MA 02266-8600.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received).

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Fund at the net
asset value next determined after an order is received by the Fund, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Fund to participate in this program.

RETIREMENT PLANS

Fund Shares can be purchased as an investment for retirement plans or IRA
accounts. For further details, contact the Fund and consult a tax adviser.

--------------------------------------------------------------------------------
EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Neither the
Fund nor any of the funds in the Liberty Family of Funds imposes any additional
fees on exchanges. Participants in a retirement plan under the Federated
LifeTrack(TM) Program may exchange all or some of their Shares for Class A
Shares
of other funds offered under the plan at net asset value.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds). Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
in other funds in the Liberty Family of Funds at net asset value without a
contingent deferred sales charge. (Not all funds in the Liberty Family of Funds
currently offer Class C Shares. Contact your financial institution regarding the
availability of other

Class C Shares in the Liberty Family of Funds.) Participants in a retirement
plan under the Federated LifeTrack(TM) Program may exchange some or all of their
Shares for Class C Shares of other funds offered under their plan at net asset
value without a contingent deferred sales charge. To the extent that a
shareholder exchanges Shares for Class C Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period. For more information, see "Contingent
Deferred Sales Charge."

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
proceeds invested in the same class of Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road--2nd Floor, Quincy, Massachusetts 02171.

Instructions for exchanges for retirement plans participating in the Federated
LifeTrack(TM) Program should be given to the plan administrator.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the Fund.
If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Fund. If reasonable procedures
are not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will begin receiving dividends

the following business day. This privilege may be modified or terminated at any
time.

--------------------------------------------------------------------------------
HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
as described below. Redemptions of Shares held through retirement plans
participating in the Federated LifeTrack(TM) Program will be governed by the
requirements of the respective plans.

REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION

Shares of the Fund may be redeemed by calling your financial institution to
request the redemption. Shares will be redeemed at the net asset value, less any
applicable contingent deferred sales charge next determined after the Fund
receives the redemption request from the financial institution. Redemption
requests through a registered broker/dealer must be received by the broker
before 4:00 p.m. (Eastern time) and must be transmitted by the broker to the
Fund before 5:00 p.m. (Eastern time) in order for Shares to be redeemed at that
day's net asset value. Redemption requests through other financial institutions
(such as banks) must be received by the financial institution and transmitted to
the Fund before 4:00 p.m. (Eastern time) in order for Shares to be redeemed at
that day's net asset value. The financial institution is responsible for
promptly submitting redemption requests and providing proper written redemption
instructions. Customary fees and commissions may be charged by the financial
institution for this service.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared.

Telephone instructions will be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
this occurs, "Redeeming Shares By Mail" should be considered. If at any time the
Fund shall determine it necessary to terminate or modify the telephone
redemption privilege, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Fund Name, Fund Class, P.O. Box 8600, Boston, MA 02266-8600.

The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. It is recommended
that any share certificates be sent by registered or certified mail with the
written request.

If you are requesting a redemption of any amount to be sent to an address other
than that on record with the Fund, or a redemption payable to a third party,
then all signatures appearing on the written request must be guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.

The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder.

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the

Fund. To be eligible to participate in this program, a shareholder must have an
account value of at least $10,000. A shareholder may apply for participation in
this program through his financial institution. Due to the fact that Class A
Shares are sold with a sales load, it is not advisable for shareholders to
continue to purchase Class A Shares while participating in this program. A
contingent deferred sales charge may be imposed on Class B Shares and Class C
Shares.

CONTINGENT DEFERRED SALES CHARGE

Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:

CLASS A SHARES

Class A Shares purchased under a periodic special offering with the proceeds of
a redemption of Shares of an unaffiliated investment company purchased or sold
with a sales load and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of .50 of 1.00% for redemptions made
within one full year of purchase. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption.

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption. No contingent deferred sales charge
will be charged for redemptions of Class C Shares from the Federated
LifeTrack(TM) Program.

CLASS A SHARES, CLASS B SHARES, AND CLASS C SHARES

The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to Class C Shares and applicable
Class A Shares. Redemptions will be processed in a manner intended to maximize
the amount of redemption which will not be subject to a contingent deferred
sales charge. In computing the amount

of the applicable contingent deferred sales charge, redemptions are deemed to
have occurred in the following order: (1) Shares acquired through the
reinvestment of dividends and long-term capital gains; (2) Shares held for more
than six full years from the date of purchase with respect to Class B Shares and
one full year from the date of purchase with respect to Class C Shares and
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
Class C Shares and applicable Class A Shares on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an exchange
of Fund Shares for Shares of other funds in the Liberty Family of Funds in the
same class (see "Exchange Privilege"). Any contingent deferred sales charge
imposed at the time the exchanged for Shares are redeemed is calculated as if
the shareholder had held the Shares from the date on which he became a
shareholder of the exchanged-from Shares. Moreover, the contingent deferred
sales charge will be eliminated with respect to certain redemptions (see
"Elimination of Contingent Deferred Sales Charge").

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or the
Federated LifeTrack(TM) Program funds or redemptions from the Federated
LifeTrack(TM) Program.

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. No contingent deferred sales charge will be imposed on redemptions
of Shares held by Directors, employees and sales representatives of the Fund,
the distributor, or affiliates of the Fund or distributor; employees of any
financial institution that sells Shares of the Fund pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

--------------------------------------------------------------------------------
ACCOUNT AND SHARE
INFORMATION

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
that quarter.

DIVIDENDS

Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date. Dividends and distributions are automatically
reinvested in additional Shares of the Fund on payment dates at the ex-dividend
date net asset value without a sales load, unless shareholders request cash
payments on the new account form or by contacting the transfer agent. All
shareholders on the record date are entitled to the dividend. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that quarter's dividend.

CAPITAL GAINS

Net long-term capital gains realized by the Fund, if any, will be distributed at
least once every twelve months.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required
minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share Class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

--------------------------------------------------------------------------------

FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

The Fund is managed by a Board of Directors. The Directors are responsible for
managing the Fund's business affairs and for exercising all the Fund's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Directors handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Fund are made by Passport Research Ltd., the Fund's
investment adviser, subject to direction by the Directors. Passport Research,
Ltd. is located at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. The Adviser continually conducts investment research and supervision
for the Fund and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Fund.

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .75 of 1% of the
Fund's average daily net assets. The fee paid by the Fund, while higher than the
advisory fee paid by other mutual funds in general, is comparable to fees paid
by many mutual funds with similar objectives and policies. The Adviser may
voluntarily waive a portion of its fee or reimburse the Fund for certain
operating expenses. The Adviser can terminate this voluntary waiver at any time
at its sole discretion. The Adviser has also undertaken to reimburse the Fund
for operating expenses in excess of limitations established by certain states.

ADVISER'S BACKGROUND

Passport Research, Ltd. is a Pennsylvania limited partnership organized in 1981.
Federated Advisers is the general partner of the Adviser and has a 50.5%
interest in the Adviser. Federated Advisers is a subsidiary of Federated
Investors. Edward D. Jones & Co. L.P. is the limited partner of the Adviser and
has a 49.5% interest in the Adviser. Passport Research, Ltd. has also acted as
investment adviser for Edward D. Jones & Co. Daily Passport Cash Trust since
1982. Employees of the Adviser are also employees of other advisers which are
affiliates of Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

Christopher H. Wiles has been the Fund's portfolio manager since May, 1990. Mr.
Wiles joined Federated Investors in 1990 and has been a Vice President of
Federated Advisers since 1992. Mr. Wiles served as Assistant Vice President of
Federated Advisers from 1990 until 1992. Mr. Wiles was a portfolio manager at
Mellon Bank from 1986 until 1990. Mr. Wiles is a Chartered Financial Analyst and
received his M.B.A. in Finance from Cleveland State University.

Linda A. Duessel has been the Fund's co-portfolio manager since April 1, 1995.
Ms. Duessel joined Federated Investors in 1991 as an Assistant Vice President of
Federated Advisers. Ms. Duessel was employed at Westinghouse Credit Corporation
from 1983 to 1991, serving in a variety of positions which culminated in her
being named Vice President/Portfolio Manager in the Merchant Banking Group in
1990. Ms. Duessel served as a Senior Staff Accountant at Arthur Young & Company
from 1979 to 1982. Ms. Duessel received her M.S.I.A. from Carnegie Mellon
University. Ms. Duessel is a Certified Public Accountant and a Chartered
Financial Analyst.

DISTRIBUTION OF 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 (except for participants in the Federated LifeTrack(TM)
Program). 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 PLANS

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers. With respect to Class B Shares, because distribution
fees to be paid by the Fund to the distributor may not exceed an annual rate of
.75% of each class of Shares' average daily net assets, it will take the
distributor a number of years to recoup the expenses it has incurred for its
distribution and distribution-related 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 adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class A Shares, Class B Shares, and Class C Shares to obtain
certain personal services for shareholders and for the maintenance of
shareholder accounts ("Shareholder Services"). The Fund has entered into a
Shareholder Services Agreement with Federated Shareholder Services, a subsidiary
of Federated Investors, under which Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50 of 1% of the net asset value
of Class A Shares purchased by their clients or customers under the Federated
LifeTrack(TM) Program or by certain qualified 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,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include 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 Federated Funds as
specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Fund, and dividend disbursing agent for the
Fund.

INDEPENDENT AUDITORS

The independent auditors for the Fund are Ernst & Young LLP, One Oxford Centre,
Pittsburgh, Pennsylvania 15219.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Directors.

--------------------------------------------------------------------------------
SHAREHOLDER INFORMATION

VOTING RIGHTS

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.

As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.

Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding Shares of all series entitled to vote.

--------------------------------------------------------------------------------
TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.

PENNSYLVANIA PERSONAL PROPERTY TAXES

Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

--------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time the Fund advertises its total return and yield for each class
of 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 non-recurring charges, such
as the maximum sales load or contingent deferred sales charges, 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 and Class C Shares. Because Class B Shares and Class C Shares are subject
to Rule 12b-1 fees, and higher Shareholder Services fees, the yield for Class A
Shares, for the same period, may exceed that of Class B Shares and Class C
Shares.

Because Class A Shares are subject to a sales load, the total return for Class B
Shares and Class C Shares for the same period will exceed that of Class A
Shares. Depending on the dollar amount invested, and the time period for which
any particular class of Shares is held, the total return for any particular
class may exceed that of another.

From time to time, advertisements for Class A Shares, Class B Shares, and Class
C 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, and Class C Shares to certain indices.

LIBERTY UTILITY
FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

COMBINED PROSPECTUS

An Open-End, Diversified
Management Investment Company

May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

531545101
531545309
531545200
G01154-01 (5/95)

LIBERTY UTILITY FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
Combined Statement of Additional Information

This Combined Statement of Additional Information should be read
with the combined prospectus for the Class A Shares, Class B
Shares, and Class C Shares of Liberty Utility Fund, Inc. (the
"Fund") dated May 31, 1995. This Statement is not a prospectus
itself. To receive a copy of any of the prospectuses, write or
call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1995

FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS

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 Agreements 3
Covered Call Options 3
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3
LIBERTY UTILITY FUND, INC.,
MANAGEMENT 5
Directors Compensation 9
INVESTMENT ADVISORY SERVICES 10
Adviser to the Fund 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 11
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 11
BROKERAGE TRANSACTIONS 11
PURCHASING SHARES 11
Distribution and Shareholder
Services Plans 12
Conversion to Federal Funds 12
Purchases by Sales
Representatives, Fund
Directors, and Employees 12
Determining Market Value of
Securities 12
REDEEMING SHARES 13
Redemption in Kind 13
TAX STATUS 13
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13
YIELD 14
PERFORMANCE COMPARISONS 14
ABOUT FEDERATED INVESTORS 15
Mutual Fund Market 16
Institutional 16
Trust Organizations 16
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 16
FINANCIAL STATEMENTS 16
APPENDIX 17

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, approved the Fund's name change from "Progressive Income Equity
Fund, Inc." to "Liberty Utility Fund, Inc."
Shares of the Fund are offered in three classes, known as Class A
Shares, Class B Shares, and Class C Shares (individually and
collectively referred to as "Shares," as the context may require). This
Combined Statement of Additional Information relates to all classes of
Shares of the Fund.
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objectives of the Fund are current income and
long-term growth of income. Capital appreciation is a secondary
objective. The Fund will seek to achieve its investment objectives by
investing in a diversified portfolio comprised primarily of equity
securities. The investment objectives cannot be changed without approval
of shareholders.
The Fund's investment approach is based on the conviction that over the
long term the economy will continue to expand and develop and that this
economic growth will be reflected in the growth of the revenues and
earnings of utility companies.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
Money Market Instruments
The Fund may invest in the following money market instruments:
o instruments of domestic and foreign banks and savings and loans
if they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
insured by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation
("FDIC"), or the Savings Association Insurance Fund ("SAIF"),
which is administered by the FDIC; and
o prime commercial paper (rated A-1 by Standard and Poor's
Ratings Group, Prime-1 by Moody's Investors Service, Inc., or F-
1 by Fitch Investors Service).
U.S. Government Obligations
The types of U.S. government obligations in which the Fund may
invest generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations
issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
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 Federal Land Banks;
o Central Bank for Cooperatives;
o Federal Intermediate Credit Banks;
o Federal Home Loan Banks;
o Farmers Home Administration; and
o Federal National Mortgage Association.
UNITS OF MASTER LIMITED PARTNERSHIPS
The Fund may invest in units of participation in master limited
partnerships. Master limited partnerships are generally partnerships
with a large number of limited partners whose ownership interests are
publicly traded. The Fund will not invest in partnerships investing in
real estate or real estate investments. The Fund will invest only in
units of participation in master limited partnerships that are traded on
a national securities exchange.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is
a fixed income security (a bond or preferred stock) which may be
converted at a stated price within a specified period of time into a
certain quantity of common stock of the same or a different issuer.
Convertible securities are senior to common stocks in a corporation's
capital structure, but are usually subordinated to similar
nonconvertible securities. While providing a fixed income stream
(generally higher in yield than the income derivable from a common stock
but lower than that afforded by a similar nonconvertible security), a
convertible security also affords an investor the opportunity, through
its conversion feature, to participate in the capital appreciation
attendant upon a market price advance in the convertible security's
underlying common stock.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to
market daily. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of
such securities. The Fund will only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Fund's adviser, Passport
Research, Ltd., (the "Adviser"), to be creditworthy pursuant to
guidelines established by the Board of Directors (the "Directors").

LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker. The
Fund does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.

RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. Section 4(2) paper is restricted as to disposition under
federal securities law, and is generally sold to institutional
investors, such as the Fund, who agree that they are purchasing the
paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper is normally resold to other
institutional investors like the Fund through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2)
paper, thus providing liquidity.
The ability of the Directors to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission staff position set forth in the adopting release for Rule
144A under the Securities Act of 1933 (the "Rule"). The Rule is a non-
exclusive, safe-harbor for certain secondary market transactions
involving securities subject to restrictions on resale under federal
securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional
buyers. The Rule was expected to further enhance the liquidity of the
secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the Staff of the Securities and Exchange Commission
has left the question of determining the liquidity of all restricted
securities (eligible for resale under Rule 144A) for determination by
the Directors. The Directors consider the following criteria in
determining the liquidity of certain restricted securities:
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, 1995, and 1994, the portfolio turnover rates were 55%
and 24%, respectively.

INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described
below without approval of shareholders.
Concentration of Investments
The Fund will not invest more than 25% of its total assets (valued
at the time of investment) in securities of companies engaged
principally in any one industry other than the utilities industry,
except that this restriction does not apply to cash or cash items
and securities issued or guaranteed by the United States
government or its agencies or instrumentalities.
Selling Short and Buying on Margin
The Fund will not purchase securities on margin, or make short
sales of securities, except for the use of short-term credit
necessary for the clearance of purchases and sales of portfolio
securities.

Issuing Senior Securities and Borrowing Money
The Fund will not borrow money, issue senior securities, or pledge
assets, except that under certain circumstances the Fund may
borrow money and engage in reverse repurchase transactions in
amounts up to one-third of the value of its net assets, including
the amounts borrowed, and pledge up to 10% of the value of those
assets to secure such borrowings.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any such borrowings are outstanding. However,
during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion
of the reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse
repurchase agreements.
Pledging Assets
The Fund will not pledge, mortgage, or hypothecate its assets,
except to secure permitted borrowings. In those cases, it may
pledge, mortgage, or hypothecate up to 10% of the value of assets
to secure such borrowings (the deposit in escrow of securities in
connection with the writing of call options or collateralizing
loans of securities is not deemed to be a pledge or hypothecation
for any purpose).

The preceding limitations regarding buying on margin, borrowing money,
and pledging assets do not apply to intra-day cash advances made by the
Fund's custodian, or the grant of a security interest in securities by
the Fund to its custodian to collateralize such intra-day cash advances
in order to enable the Fund to settle securities purchases or to redeem
shares of the Fund.
Investing in New Issuers
The Fund will not invest more than 5% of the value of its total
assets in securities of companies, including their predecessors,
which have been in operation for less than three years.
Underwriting
The Fund will not underwrite any issue of securities, except as it
may deemed to be an underwriter under the Securities Act of 1933
in connection with the sale of restricted securities which the
Fund may purchase pursuant to its investment objectives, policies,
and limitations.
Diversification of Investments

The Fund will not invest more than 5% of its total assets (valued
at the time of investment) in the securities of any one issuer,
except that this restriction does not apply to cash and cash
items, repurchase agreements, and securities issued or guaranteed
by the United States government or its agencies or
instrumentalities; or acquire more than 10% of any class of voting
securities of any one issuer (at time of acquisition).

Lending Cash or Securities
The Fund will not lend any of its assets except portfolio
securities up to one-third of the value of its total assets. This
shall not prevent the purchase or holding of corporate bonds,
debentures, notes, certificates of indebtedness or other debt
securities of an issuer, repurchase agreements, or other
transactions which are permitted by the Fund's investment
objectives and policies.
Restricted Securities
The Fund will not invest more than 10% of its total assets in
securities subject to restrictions on resale under federal
securities law (except for commercial paper issued under Section
4(2) of the Securities Act of 1933).
Writing Covered Call Options
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. The
Fund's investment in put or call options, straddles, spreads, or
any combination thereof shall not exceed 5% of the Fund's total
assets.
Investing in Warrants

The Fund will not invest more than 5% of its assets in warrants,
not more than 2% of which can be warrants which are not listed on
recognized exchanges.
Investing in Securities of Foreign Issuers
The Fund will not invest more than 15% of its total assets in
securities of foreign issuers not listed on recognized exchanges.
Investing in Illiquid Securities
The Fund will not invest more than 10% of its total assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice.

Investing in Issuers Whose Securities are Owned by Officers and
Directors of the Fund
The Fund will not purchase or retain the securities of any issuer
if the officers and Directors of the Fund or its Adviser owning
individually 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
Investing in Minerals
The Fund will not purchase interests in oil, gas, or mineral
exploration or development programs, except it may purchase the
securities of issuers which invest in or sponsor such programs.
Investing in Real Estate
The Fund will not purchase or sell real estate or any interest
therein, except that the Fund may invest in securities secured by
real estate or interests therein, such as mortgage pass-throughs,
pay-throughs, collateralized mortgage obligations, and securities
issued by companies that invest in real estate or interests
therein. The Fund will not invest in limited partnerships
investing in real estate or real estate investments.
Investing in Securities of Other Investment Companies
The Fund will not purchase or retain shares of any open-end
investment company (exclusive of shares acquired as a result of
merger, consolidation, or other plan of reorganization).
Purchasing Securities to Exercise Control
The Fund will not invest for the purpose of exercising control
over or management of any company.
Investing in Commodities
The Fund will not purchase or sell commodities or commodity
contracts.

If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from
changes in value or in the number of outstanding securities of an issuer
will not be considered a violation.

In addition, in order to comply with certain state restrictions, the
Fund will not invest in oil, gas, or mineral leases. If state
requirements change, this limitation may be amended without notice to
shareholders.
The Fund will not purchase any securities while borrowings in excess of
5% of the value of its total assets are outstanding.
The Fund did not borrow money or invest in reverse repurchase agreements
in excess of 5% of the value of its net assets during the last fiscal
year and has no present intention to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan association having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."
LIBERTY UTILITY FUND, INC., MANAGEMENT

Officers and Directors are listed with their addresses, principal
occupations, and present positions.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.

Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.

Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Federa
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.

* This Director is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding
Shares.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; The Medalist Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; The Virtus Funds; and World Investment
Series, Inc.
Fund Ownership
As of May 5, 1995, 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 4,640,451
Class C Shares (6.93%).
As of May 5, 1995, 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 2,027,183
Class C Shares (38.46%).
DIRECTORS COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND* FROM FUND COMPLEX +

John F. Donahue, $0 $0 for the Fund and
Chairman and Director 68 other investment companies in the
Fund Complex
Thomas G. Bigley $0 $20,688 for the Fund and
49 other investment companies in the
Fund Complex
John T. Conroy, Jr., $2,064 $117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
William J. Copeland, $2,064 $117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Richard B. Fisher, $0 $0 for the Fund and
Vice President and Director 8 other investment companies in
the Fund Complex
James E. Dowd, $2,064 $117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D., $1,872 $106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr., $2,064 $117,202 for the Fund and
Director 64 other investment companies in the
Fund Complex
Peter E. Madden, $1,594 $90,563 for the Fund and
Director 64 other investment companies in the
Fund Complex
Gregor F. Meyer, $1,872 $106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
John E. Murray, Jr., $0 $0 for the Fund and
Director 64 other investment companies in the
Fund Complex
Wesley W. Posvar, $1,872 $106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex
Marjorie P. Smuts, $1,872 $106,460 for the Fund and
Director 64 other investment companies in the
Fund Complex

*Information is furnished for the fiscal year ended February 28, 1995.
+The information is provided for the last calendar year.

INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser, Passport Research, Ltd., 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 "Liberty
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, 1995, 1994, and 1993, the Adviser earned
$6,347,619, $6,774,071, and $4,017,913, respectively, which were reduced
by $1,683,310, $1,510,782, and $22,320, respectively.

State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the combined prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Fund's administrator. For the fiscal years ended February
28, 1995, Federated Administrative Services earned $640,686. For the
fiscal year ended February 28, 1994 and 1993, Federated Administrative
Services, Inc., earned $959,208 and $576,939. Dr. Henry J. Gailliot, an
officer of the Adviser to the Fund, holds approximately 20% of the
outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type, and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee is paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
The 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relation to the value of the
brokerage and research services provided. The Fund anticipates that
Edward D. Jones & Co., which is the limited partner of the Adviser, may
upon occasion, subject to certain restrictions, act as broker or dealer
in connection with portfolio transactions for the Fund.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising certain other accounts. To
the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses.

For the fiscal years ended February 28, 1995, 1994, and 1993, the Fund
paid $1,201,969, $636,925, and $540,200, respectively, in brokerage
commissions on brokerage transactions.

PURCHASING SHARES
Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales
load on Class A Shares only) on days the New York Stock Exchange is open
for business. The procedure for purchasing Shares is explained in the
prospectuses under "How to Purchase Shares."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan (Class B and Class C Shares only), the
Directors expects 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.

During the period from October 12, 1994 to February 28, 1995, payments
in the amount of $21,567 were made pursuant to the Distribution Plan for
Class B Shares. For the fiscal year ended February 28, 1995, payments in
the amount of $453,766 were made pursuant to the Distribution Plan for
Class C Shares. In addition, for the fiscal year ended February 28,
1995, payments in the amount of $2,058,688 were made pursuant to a
Shareholder Services Plan adopted by the Fund.

CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal funds
before shareholders begin to earn dividends. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them
to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, the
Adviser, and Federated Securities Corp., or their affiliates, or any
investment dealer who has a sales agreement with Federated Securities
Corp., and their spouses and children under 21, may buy Shares at net
asset value without a sales load and are not subject to a contingent
deferred sales charge (Class B Shares and Class C Shares only) to the
extent the financial institution through which the Shares are sold
agrees to waive any initial payment to which it might otherwise be
entitled. Shares may also be sold without a sales loads to trusts or
pension or profit-sharing plans for these persons and to persons who
elect to sweep into the Fund (i.e., directly invest) the dividends
payable on shares of common and preferred stock, unit investment trusts,
and closed-end investment companies, owned directly or indirectly of
such persons.
These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.
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.
REDEEMING SHARES
The Fund redeems Shares at the next computed net asset value after the
Fund receives the redemption request. Shareholder redemptions of Class B
Shares and Class C Shares may be subject to a contingent deferred sales
charge. Redemption procedures are explained in the prospectuses under
"How to Redeem Shares."
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 Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem Shares
for any shareholder in cash up to the lesser of $250,000 or 1% of a
class of Shares' 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.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special
tax treatment afforded to such companies. To qualify for this treatment,
the Fund must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from gains on the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. Only a nominal portion of
any income dividend paid by the Fund is expected to be eligible for the
dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held Fund Shares.
TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the one-
year and five-year periods ended February 28, 1995, and for the period
from June 5, 1987 to February 28, 1995, were (6.41%), 8.93% and 10.80%,
respectively.
The Fund's cumulative total return for Class B Shares, for the period
from October 12, 1994 to February 28, 1995, was (3.42%).
The Fund's average annual total return for Class C Shares for the fiscal
year ended February 28, 1995 and the period from April 30, 1993 (date of
initial public offering), to February 28, 1995, were (2.64%) and 0.85%,
respectively.

The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would
equate a $1,000 initial investment to the ending redeemable value of
that investment. The ending redeemable value is computed by multiplying
the number of Shares owned at the end of the period by the offering
price per Share at the end of the period. The number of Shares owned at
the end of the period is based on the number of Shares purchased at the
beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional Shares, assuming the
quarterly 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.
Cumulative total return reflects Class B Shares' total performance over
a specific period of time. This total return assumes and is reduced by
the payment of the maximum sales load, if applicable. The Class B
Shares' total return is representative of only six months of investment
activity since the date of initial public offering.
YIELD

The Fund's yields for Class A Shares, Class B Shares, and Class C
Shares, were 4.38%, 3.87% and 3.87%, respectively, for the thirty-day
period ended February 28, 1995.

The yield for all classes of Shares of the Fund is determined by
dividing the net investment income per Share (as defined by the
Securities and Exchange Commission) earned by any class of Shares over a
thirty-day period by the maximum offering price per Share of any class
of Shares on the last day of the period. This value is then annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a 12-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by any class
of Shares because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends
or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in any class of Shares, the performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS
The Fund's performance of each class of Shares depends upon such
variables as:
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 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 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 quarterly
reinvestment of dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class
of Shares using charts, graphs and descriptions, compared to federally
insured bank products including certificates of deposit and time
deposits and to money market funds using the Lipper Analytical Services
money market instruments average.
Advertisements may quote performance information which does not reflect
the effect of a sales load or contingent deferred sales charge, as
applicable.

ABOUT FEDERATED INVESTORS
Federated is dedicated to meeting investor needs which is reflected in
its investment decision making structured, straightforward, and
consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
In the equity sector, Federated has more than 25 years' experience. As
of December 31, 1994, Federated managed 15 equity funds totaling
approximately $4 billion in assets across growth, value, equity income,
international, index and sector (i.e. utility) styles. Federated's value-
oriented management style combines quantitative and qualitative analysis
and features a structured, computer-assisted composite modeling system
that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1994, Federated managed
8 money market funds, 5 investment grade and 4 high yield bond funds
with assets approximating $7.4 billion, $.9 billion and $.8 billion,
respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 20 years of
experience in the corporate bond sector. In 1972, Federated introduced
one of the first high-yield bond funds in the industry. In 17 years
ending December 1994, Federated's high-yield portfolios experienced a
default rate of just 1.86%, versus 3.10% for the market as a whole. In
1983, Federated was one of the first fund managers to participate in the
asset-backed securities market, a market totaling more than $200
billion.
J. Thomas Madden, Executive Vice President, oversees Federated's equity
and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated's domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing
their financial goals through mutual funds. These
investors, as well as businesses and institutions, have
entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications.
Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate
accounts and mutual funds for a variety of applications,
including defined benefit and defined contribution
programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The
marketing effort to these institutional clients is headed
by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships
with more than 1,500 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed
by Mark R. Gensheimer, Executive Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major
brokerage firms nationwide-including 200 New York Stock Exchange
firms- supported by more wholesalers than any other mutual fund
distributor. The marketing effort to these firms is headed by James F.
Getz, President, Broker/Dealer Division.
*source: Investment Company Institute
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended February 28, 1995,
are incorporated herein by reference to the Annual Report of the Fund
dated February 28, 1995 (File Nos. 33-13388 and 811-5114). A copy of
this report may be obtained without charge by contacting the Fund.

APPENDIX
DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are
general and are not absolute standards of quality or guarantees as to
the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of fixed income
securities in which the Fund invests should be continuously reviewed and
that individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a recommendation to
purchase, sell, or hold a security, because it does not take into
account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating
is evaluated independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from other
sources that they consider reliable. Ratings may be changed, suspended,
or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA-Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA-Debt rated "AAA" has the highest rating assigned by Standard &
Poor's Ratings Group. Capacity to pay interest and repay principal is
extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
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 RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
531545101
531545309
531545200
G01154-02 (5/95)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) Financial Statements (incorporated by reference to
Registrant's Annual Report dated February 28, 1995).

(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) Copies of Specimen Certificates for Shares of Capital
Stock for Class A Shares, Class B Shares, and Class C
Shares of the Registrant;+
(5) Copy of Investment Advisory Contract of the
Registrant (5.);
(6) (i) Copy of Distributor's Contract of
the Registrant, through and including
Exhibits A and B;+
(ii) Copy of Exhibit C to Distributor's
Contract of the Registrant adding Class B
Shares to the existing Distributor's Contract;+
(7) Not applicable;
(8) Copy of Custodian Contract of the Registrant;+
(9) (i) Copy of the Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement of the Registrant;+
(ii) Copy of the Shareholder Services Plan of the
Registrant;+
(iii) Copy of Administrative Services Agreement of
the Registrant;+
(iv) Copy of Shareholder Services Agreement of the
Registrant;+
(10) Not applicable;
(11) Copy of Consent of Independent Auditors;+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
___________________
+ 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).
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 3 on Form N-2 filed May 19, 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).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed April 24, 1989. (File No. 33-13388)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed February 21, 1990 (File Nos. 33-
13388 and 811-5114).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 20, 1990 (File Nos. 33-13388
and 811-5114).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed April 22, 1992 (File Nos. 33-13388
and 811-5114).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed April 23, 1993 (File Nos. 33-13388
and 811-5114).
(15) (i) Copy of Rule 12b-1 Plan of the Registrant,
through and including Exhibit A;+
(ii) Copy of Exhibit B to the Rule 12b-1 Plan of the
Registrant adding Class B Shares to the
existing Rule 12b-1 Plan;+
(16) Copy of Schedule for Computation of Fund
Performance Data;+
(17) Financial Data Schedules;+
(18) Copy of Power of Attorney;+

Item 25. Persons Controlled by or Under Common Control with Registrant:
None

Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 5, 1995
Shares of capital stock
($0.001 per Share par value)
Class A Shares 79,380
Class B Shares 2,238
Class C Shares 4,343

Item 27. Indemnification: (1)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the
investment adviser, see the section entitled "Fund Information -
Management of the Fund" in Part A. The affiliations with the
Registrant of five of the Officers of the investment adviser are
included in Part B of this Registration Statement under "Liberty
Utility Fund, Inc. Management - Officers and Directors."

The remaining Officers of the investment adviser
are: William D. Dawson, J. Thomas Madden, Mark L. Mallon, Executive
Vice Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, J. Alan Minteer, Senior Vice Presidents; J. Scott
Albrecht, Randall A. Bauer, David A. Briggs, Jonathan C. Conley,
Deborah A. Cunningham, Michael P.Donnelly, Mark E. Durbiano, Kathleen
M. Foody-Malus, Thomas M. Franks, Edward C. Gonzales, Jeff A.
Kozemchak, Marian R. Marinach, John W. McGonigle, Gregory M. Melvin,
Susan M. Nason, Mary Jo Ochson, Robert J. Ostrowski, Frederick L.
Plautz, Jr., Charles A. Ritter, James D. Roberge, Sandra L. Weber,
Christopher H. Wiles, Vice Presidents; Joseph Balestrino, Linda Anne
Duessel, James Grefenstette, Susan R. Hill, Timothy Keefe, Paige
Wilhelm, Thomas F. Woodhouse, Assistant Vice Presidents; John W.
McGonigle, Secretary; Edward C. Gonzales, Treasurer; The business
address of each of the Officers of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals are also
officers of a majority of the investment advisers to the Funds listed
in Part B of this Registration Statement.

Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for
shares of the Registrant, also acts as principal
underwriter for the following open-end investment
companies: Alexander Hamilton Funds; American Leaders
Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money
Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; California Municipal Cash Trust; Cash
Trust Series, Inc.; Cash Trust Series II; DG Investor
Series; Edward D. Jones & Co.;
___________________
+ 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).
Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; First Priority Funds; First Union
Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fountain Square
Funds; Fund for U.S. Government Securities, Inc.; Government
Income Securities, Inc.; High Yield Cash Trust; Independence
One Mutual Funds; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; The Medalist Funds; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; SouthTrust Vulcan Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds;
Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations;
Vision Fiduciary Funds, Inc.; Vision Group of Funds, Inc.;
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.

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Vice President and
Federated Investors Tower President, and Treasurer, Treasuer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779

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 Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")

Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779

Passport Research, Ltd. Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779

State Street Bank and Trust Co. P.O. Box 8604
("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 with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

Registrant hereby undertakes to comply with the provisions
of Section 16(c) of the 1940 Act with respect to the removal
of Directors and the calling of special shareholder meetings
by shareholders.
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, LIBERTY UTILITY FUND,
INC., certifies that it meets all of the requirements for effectiveness
of this Amendment to its Registration Statement pursuant to Rule 485 (b)
under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 24th day of May, 1995.

LIBERTY UTILITY FUND, INC.

BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 24,1995

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE

By: /s/Charles H. Field
Charles H. Field Attorney In Fact May 24, 1995
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

Richard B. Fisher* President and Director

Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)

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 (11) under Form N-1A
Exhibit 23 under Item 601/Reg SK

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
April 18, 1995, in Post Effective Amendment Number 13 to the Registration
Statement (Form N-1A No. 33-1338) and the related Prospectus of Class A
Shares, Class B Shares, and Class C Shares of Liberty Utility Fund, Inc.,
dated May 31, 1995 and to the incorporation by reference therein of our
report dated April 18, 1995 on the financial statements and financial
highlights of Liberty Utility Fund, Inc., included in its Annual Report to
Shareholders for the year ended February 28, 1995.

By: ERNST & YOUNG LLP
Ernst & Young LLP
May 22, 1995

Exhibit 17 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of LIBERTY UTILITY FUND,
INC. and the Assistant General Counsel of Federated Investors, and each
of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names,
place and stead, in any and all capacities, to sign any and all
documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of
1934 and the Investment Company Act of 1940, by means of the Securities
and Exchange Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to sign and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ John F. Donahue Chairman and
Trustee April 13, 1995
John F. Donahue (Chief Executive Officer)

__/s/ Richard B. Fisher_______ President
April 13, 1995

/s/ E. C. Gonzales Vice
President and Treasurer April 13, 1995
Edward C. Gonzales (Principal Financial and
Accounting Officer)

/s/ John T. Conroy, Jr. Director
April 13, 1995
John T. Conroy, Jr.

/s/ William J. Copeland Director
April 13, 1995
William J. Copeland

/s/ James E. Dowd Director
April 13, 1995
James E. Dowd

/s/ Lawrence D. Ellis M.D. Director
April 13, 1995
Lawrence D. Ellis M.D.

/s/ Edward L. Flaherty, Jr. Director
April 13, 1995
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Director April 13, 1995
Peter E. Madden

/s/ Gregor F. Meyer Director April 13, 1995
Gregor F. Meyer

/s/ John E. Murray Director April 13, 1995
John E. Murray

/s/ Wesley W. Posvar Director April
13, 1995
Wesley W. Posvar

/s/ Marjorie P. Smuts Director April
13, 1995
Marjorie P. Smuts

Sworn to and subscribed before me this 13th day of April, 1995.

/s/ Marie L. Hamm
Notary Public

-1-
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

EXHIBIT B
to the
12b-1 Plan

LIBERTY UTILITY FUND, INC.

Class B Shares

This Plan is adopted by LIBERTY UTILITY FUND, INC. with respect to
the Class of Shares of the Corporation set forth above.

In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .75 of 1%
of the average aggregate net asset value of the Class B Shares of the
Corporation held during the month.

Witness the due execution hereof this 1st day of September, 1994.

LIBERTY UTILITY FUND, INC.

By: /s/ Richard B. Fisher
President

-1-
Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Exhibit C
to the
Distributor's Contract

Liberty Utility Fund, Inc.

Class B Shares

The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 1st day of March, 1993, between
Liberty Utility Fund, Inc. and Federated Securities Corp. with respect
to Classes of the Funds set forth above.

1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed
Classes ("Shares"). Pursuant to this appointment, FSC is authorized to
select a group of brokers ("Brokers") to sell Shares at the current
offering price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render administrative support
services to the Corporation and its shareholders. In addition, FSC is
authorized to select a group of administrators ("Administrators") to
render administrative support services to the Corporation and its
shareholders.

2. Administrative support services may include, but are not
limited to, the following functions: 1) account openings: the Broker
or Administrator communicates account openings via computer terminals
located on the Broker's or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Corporation share purchases and
redemptions, confirms and reconciles all transactions, reviews the
activity in the Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Corporation's
accounts; 7) prospectus and shareholder reports: Broker or
Administrator maintains and distributes current copies of prospectuses
and shareholder reports; 8) advertisements: the Broker or Administrator
continuously advertises the availability of its services and products;
9) customer lists: the Broker or Administrator continuously provides
names of potential customers; 10) design services: the Broker or
Administrator continuously designs material to send to customers and
develops methods of making such materials accessible to customers; and
11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.

3. During the term of this Agreement, the Corporation will pay
FSC for services pursuant to this Agreement, a monthly fee computed at
the annual rate of .75 of 1.00% of the average aggregate net asset value
of the Class B Shares held during the month. For the month in which
this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of
days that the Agreement is in effect during the month.

4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the
Corporation, voluntarily declare to be effective.

5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1
herein. FSC, in its sole discretion, may pay Brokers and Administrators
a periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time by
FSC in its sole discretion.

6. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Brokers and Administrators and the purpose for
such payments.

In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Utility
Fund, Inc. and Federated Securities Corp., Liberty Utility Fund, Inc.
executes and delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set forth in
this Exhibit.

Witness the due execution hereof this ___ day of __________, 1994.

ATTEST: LIBERTY UTILITY FUND, INC.

/s/John W. McGonigle By: /s/ Richard B. Fisher
Secretary President
(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/s/ Elliott Cohan /s/ Edward C. Gonzales
Secretary Executive Vice President
(SEAL)

-1-
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

EXHIBIT C
to the
Shareholder Services Plan

Liberty Utility Fund, Inc.

Class B Shares

This Plan is adopted by Liberty Utility Fund, Inc. with respect to
the Class of Shares of the Corporation set forth above.

In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of .25
of 1% of the average aggregate net asset value of the Class B Shares of
the Corporation held during the month.

Witness the due execution hereof this 1st day of September, 1994.

LIBERTY UTILITY FUND, INC.

By: /s/ Richard B. Fisher
President

Liberty Utility Fund, Inc. Page 1 5/24/95 ver. 1294v1
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of December 1, 1994, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Corporation"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of
the Corporation, and FEDERATED SERVICES COMPANY, a Delaware business Trust,
having its principal office and place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Corporation may desire to retain the Company to provide
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company is willing to furnish such services; and
WHEREAS, the Corporation may desire to appoint the Company as its transfer
agent, dividend disbursing agent if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Corporation may desire to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved list
of qualified banks if so indicated on Exhibit 1, and the Company desires to
accept such appointment; and
WHEREAS, from time to time the Corporation may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Corporation Company or
another agent (the "Agent"); and
WHEREAS, the words Corporation and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Corporation hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Article 3 of this Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Corporation's Board of
Corporationees or Directors ("Board"), the Company will assist the Corporation
with regard to fund accounting for the Corporation, and/or the Funds, and/or
the Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide a
price for a security which the Company believes should be available by
market quotation, the Company may obtain a price by calling brokers
designated by the investment adviser of the fund holding the security,
or if the adviser does not supply the names of such brokers, the
Company will attempt on its own to find brokers to price those
securities; thirdly, for securities for which no market price is
available, the Pricing Committee of the Board will determine a fair
value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to
exercise reasonable care in the supervision of the pricing agent. The
Company is not the guarantor of the securities prices received from
such agents and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net asset value
per share of such Fund or Class when the calculations are based upon
such prices. All of the above sources of prices used as described are
deemed by the Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices used in
calculating the net asset value of the fund, for its use in preparing
exception reports for those prices on which the adviser has comment.
Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board
and as set forth in the Prospectus and Statement of Additional
Information ("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Corporation, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder
in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Corporation
are the property of the Corporation and further agrees to surrender
promptly to the Corporation such records upon the Corporation's
request;
G. At the request of the Corporation, prepare various reports or other
financial documents required by federal, state and other applicable
laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Corporation.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the fees
agreed upon from time to time between the parties hereto. Such fees do
not include out-of-pocket disbursements of the Company for which the
Funds shall reimburse the Company upon receipt of a separate invoice.
Out-of-pocket disbursements shall include, but shall not be limited
to, the items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees
of Corporationees or Directors of the Corporation; independent
auditors expenses; Federated Administrative Services and/or Federated
Administrative Services, Inc. legal and audit department expenses
billed to Federated Services Company for work performed related to the
Corporation, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly payable
by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the
full month period. Upon any termination of this Agreement before the
end of any month, the fee for such period shall be prorated according
to the proportion which such period bears to the full month period.
For purposes of determining fees payable to the Company, the value of
the Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing services under this Section One. Such person or persons may
be third-party service providers, or they may be officers and
employees who are employed by both the Company and the Funds. The
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Corporation, the
Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Corporation, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Corporation, or the Fund, and the Company are
satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Corporation as to any
Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be
paid out. The Company shall reconcile the amounts so requested
and the amounts actually received with the Custodian on a daily
basis. If a Shareholder is entitled to receive additional Shares
by virtue of any such distribution or dividend, appropriate
credits shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where requested;
and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Corporation, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall notify
the Funds on a daily basis of the total amount of redemption
requests processed and monies paid to the Company by the
Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a
regular basis or upon reasonable request with the total number
of Shares which are authorized and issued and outstanding, but
shall have no obligation when recording the issuance of Shares,
except as otherwise set forth herein, to monitor the issuance of
such Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Corporation or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to
retain in the Company's files, records and documents created and
maintained by the Company pursuant to this Agreement, which are
no longer needed by the Company in performance of its services
or for its protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for six
years from the year of creation, during the first two of which
such documents will be in readily accessible form. At the end of
the six year period, such records and documents will either be
turned over to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts,
mailing Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares
and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in
each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Corporation.
A. Compliance
The Corporation or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Corporation shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such supply
upon request of the Company. Such blank Share certificates shall be
properly signed, manually or by facsimile, if authorized by the
Corporation and shall bear the seal of the Corporation or facsimile
thereof; and notwithstanding the death, resignation or removal of any
officer of the Corporation authorized to sign certificates, the
Company may continue to countersign certificates which bear the manual
or facsimile signature of such officer until otherwise directed by the
Corporation.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Corporation and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed upon
between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Corporation and the Company. Pursuant to
information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The
Company will charge the Fund the same fees for each such Class or sub-
component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Corporation
and/or Fund agree to reimburse the Company for out-of-pocket expenses
or advances incurred by the Company for the items agreed upon between
the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Corporation and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section Two may
be assigned by either party without the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. The Company may without further consent on the part of the Corporation
subcontract for the performance hereof with (A) State Street Bank and
its subsidiary, Boston Financial Data Services, Inc., a Massachusetts
Corporation ("BFDS"), which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934,
as amended, or any succeeding statute ("Section 17A(c)(1)"), or (B) a
BFDS subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other provider
of services duly registered as a transfer agent under Section
17A(c)(1) as Company shall select; provided, however, that the Company
shall be as fully responsible to the Corporation for the acts and
omissions of any subcontractor as it is for its own acts and
omissions; or
C. The Company shall upon instruction from the Corporation subcontract for
the performance hereof with an Agent selected by the Corporation,
other than BFDS or a provider of services selected by Company, as
described in (2) above; provided, however, that the Company shall in
no way be responsible to the Corporation for the acts and omissions of
the Agent.
SECTION THREE: Custody Services Procurement.
Article 9. Appointment.
The Corporation hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate the nature and the quality of the custodial services provided
by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the Corporation as
Custodian of the Corporation's assets substantially on the terms set
forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for the benefit
of the Corporation, with the Corporation as a party to each such
agreement. The Company shall not be a party to any agreement with any
such Custodian;
D. establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
E. continuously monitor the nature and the quality of services provided by
the Custodians; and
F. periodically provide to the Corporation (i) written reports on the
activities and services of the Custodians; (ii) the nature and amount
of disbursement made on account of the Corporation with respect to
each custodial agreement; and (iii) such other information as the
Board shall reasonably request to enable it to fulfill its duties and
obligations under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, the Corporation and/or the Fund agree to pay the Company an
annual fee as agreed upon between the parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Corporation
and/or Fund agree to reimburse the Company for out-of-pocket expenses
or advances incurred by the Company for the items agreed upon between
the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Corporation and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than monthly,
and shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Corporation and/or the Funds and a duly authorized
officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this Agreement,
the Corporation shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Corporation and all
amendments thereto;
(2) A copy of the resolution of the Board of the Corporation
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Corporation or the Funds in the forms approved by the Board of
the Corporation with a certificate of the Secretary of the
Corporation as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Corporation authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Corporation;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Corporation that:
(1) It is a business Trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this
Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Corporation
The Corporation represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Corporation is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each
Fund being offered for sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in carrying
out the provisions of this Contract. The Company shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the
Corporation) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or state
laws or regulations, and is in good faith and without negligence.
B. Indemnification by Corporation
The Company shall not be responsible for and the Corporation or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Corporation or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase,
redemption or transfer of Shares and Shareholder account
information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties
contracted by or approved by the Corporation of Fund for
use in the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Corporation.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Corporation or
the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered
in such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties of failure to
meet the standard of care set forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the Corporation or
Fund for instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be performed
by the Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the
Corporation or the appropriate Fund for any action reasonably taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its agents and
subcontractors shall be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of the Corporation or the
Fund, and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other. Should the Corporation exercise its
rights to terminate, all out-of-pocket expenses associated with the movement
of records and materials will be borne by the Corporation or the appropriate
Fund. Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of
Article 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement executed
by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Corporation may from time to time agree on such provisions interpretive of or
in addition to the provisions of this Agreement as may in their joint opinion
be consistent with the general tenor of this Agreement. Any such interpretive
or additional provisions shall be in a writing signed by both parties and
shall be annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or any
provision of the Charter. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Corporation at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Corporation or the Company may hereafter specify, shall
be deemed to have been properly delivered or given hereunder to the respective
address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
Article 22. Limitations of Liability of Corporationees and Shareholders of
the Corporation.
The execution and delivery of this Agreement have been authorized by the
Corporationees of the Corporation and signed by an authorized officer of the
Corporation, acting as such, and neither such authorization by such
Corporationees 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 Corporationees or Shareholders of the Corporation, but bind
only the appropriate property of the Fund, or Class, as provided in the
Declaration of Corporation.
Article 23. Limitations of Liability of Corporationees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by the
Corporationees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such Corporationees
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 Corporationees or Shareholders of the Company, but bind only the property
of the Company as provided in the Declaration of Corporation.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to the Corporation or the Funds by either of the parties hereto
except by the specific written consent of the other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
Article 26. Successor Agent.
If a successor agent for the Corporation shall be appointed by the
Corporation, the Company shall upon termination of this Agreement deliver to
such successor agent at the office of the Company all properties of the
Corporation held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or Corporation company, which is a "bank" as
defined in the 1940 Act, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report, of not
less than $2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or Corporation company shall be the successor of the
Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign to a
successor all of or a substantial portion of its business, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 28 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

ATTEST: INVESTMENT COMPANIES
(listed on Exhibit 1)

/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman

ATTEST: FEDERATED SERVICES COMPANY

/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President

EXHIBIT 1
LIBERTY UTILITY FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

EXHIBIT 8 UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K

CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY

TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. 9
2.10 Payments for Repurchases or Redemptions of Shares of a Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public Accountants/Auditors 16
6. Reports to Trust by Independent Public Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22

CUSTODIAN CONTRACT

This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as it
may be amended from time to time, (the "Corporation"), which may be
Massachusetts business Trusts or Maryland corporations or have such other form
of organization as may be indicated, on behalf of the portfolios (hereinafter
collectively called the "Funds" and individually referred to as a "Fund") of
the Corporation, having its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE STREET BANK AND
CORPORATION COMPANY, a Massachusetts Corporation company, having its principal
place of business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian", and FEDERATED SERVICES COMPANY, a Delaware
business Trust company, having its principal place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, hereinafter called
("Company").

WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Corporation hereby employs the Custodian as the custodian of the
assets of each of the Funds of the Corporation. Except as otherwise
expressly provided herein, the securities and other assets of each of
the Funds shall be segregated from the assets of each of the other Funds
and from all other persons and entities. The Corporation will deliver
to the Custodian all securities and cash owned by the Funds and all
payments of income, payments of principal or capital distributions
received by them with respect to all securities owned by the Funds from
time to time, and the cash consideration received by them for shares
("Shares") of beneficial interest/capital stock of the Funds as may be
issued or sold from time to time. The Custodian shall not be
responsible for any property of the Funds held or received by the Funds
and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions, provided
that the Custodian shall have no more or less responsibility or
liability to the Corporation or any of the Funds on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than securities
which are maintained pursuant to Section 2.12 in a clearing agency
which acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System", or securities which are
subject to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall maintain records of
all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic
physical inspections of certificates representing stocks, bonds and
other securities held by it under this Contract in such manner as
the Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. With respect to
securities held by any agent appointed pursuant to Section 2.11
hereof, and with respect to securities held by any sub-custodian
appointed pursuant to Section 1 hereof, the Custodian may rely upon
certificates from such agent as to the holdings of such agent and
from such sub-custodian as to the holdings of such sub-custodian,
it being understood that such reliance in no way relieves the
Custodian of its responsibilities under this Contract. The
Custodian will promptly report to the Corporation the results of
such inspections, indicating any shortages or discrepancies
uncovered thereby, and take appropriate action to remedy any such
shortages or discrepancies.
2.2 Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a Securities
System account of the Custodian only upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
(1) Upon sale of such securities for the account of a Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Corporation;
(3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the name
of a Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.11 or into the name or nominee
name of any sub-custodian appointed pursuant to Section 1; or
for exchange for a different number of bonds, certificates or
other evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the new
securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own failure
to act in accordance with the standard of reasonable care or
any higher standard of care imposed upon the Custodian by any
applicable law or regulation if such above-stated standard of
reasonable care were not part of this Contract;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered
to the Custodian;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified by
the Corporation, (b) certificated securities of a description
specified by the Corporation, registered in the name of the
Fund or in the name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Corporation,
transferred through a Securities System in accordance with
Section 2.12 hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing already
made, further securities may be released for the purpose;
(12)For delivery in accordance with the provisions of any agreement
among the Corporation or a Fund, the Custodian and a broker-
dealer registered under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any agreement
among the Corporation or a Fund, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any
similar organization or organizations, regarding account
deposits in connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer agent ("Transfer
Agent") for a Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
in satisfaction of requests by holders of Shares for repurchase
or redemption; and
(15)For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Corporation on
behalf of a Fund signed by an officer of the Corporation and
certified by its Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian
(other than bearer securities) shall be registered in the name of a
particular Fund or in the name of any nominee of the Fund or of any
nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Corporation has authorized in
writing the appointment of a nominee to be used in common with
other registered investment companies affiliated with the Fund, or
in the name or nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-custodian
appointed pursuant to Section 1. All securities accepted by the
Custodian on behalf of a Fund under the terms of this Contract
shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only to
draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for the
account of each Fund, other than cash maintained in a joint
repurchase account with other affiliated funds pursuant to Section
2.14 of this Contract or by a particular Fund in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940 Act").
Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian
or in such other banks or Corporation companies as it may in its
discretion deem necessary or desirable; provided, however, that
every such bank or Corporation company shall be qualified to act as
a custodian under the 1940 Act and that each such bank or
Corporation company and the funds to be deposited with each such
bank or Corporation company shall be approved by vote of a majority
of the Board of Corporationees/Directors ("Board") of the
Corporation. Such funds shall be deposited by the Custodian in its
capacity as Custodian for the Fund and shall be withdrawable by the
Custodian only in that capacity. If requested by the Corporation,
the Custodian shall furnish the Corporation, not later than twenty
(20) days after the last business day of each month, an internal
reconciliation of the closing balance as of that day in all
accounts described in this section to the balance shown on the
daily cash report for that day rendered to the Corporation.
2.5 Payments for Shares. The Custodian shall make such arrangements
with the Transfer Agent of each Fund, as will enable the Custodian
to receive the cash consideration due to each Fund and will deposit
into each Fund's account such payments as are received from the
Transfer Agent. The Custodian will provide timely notification to
the Corporation and the Transfer Agent of any receipt by it of
payments for Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement between the
Corporation and the Custodian, the Custodian shall make federal
funds available to the Funds as of specified times agreed upon from
time to time by the Corporation and the Custodian in the amount of
checks, clearing house funds, and other non-federal funds received
in payment for Shares of the Funds which are deposited into the
Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall
collect on a timely basis all income and other payments with
respect to bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to each
Fund's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. The collection
of income due the Funds on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of
the Corporation. The Custodian will have no duty or
responsibility in connection therewith, other than to provide
the Corporation with such information or data as may be
necessary to assist the Corporation in arranging for the timely
delivery to the Custodian of the income to which each Fund is
properly entitled.
(2) The Custodian shall promptly notify the Corporation whenever
income due on securities is not collected in due course and
will provide the Corporation with monthly reports of the status
of past due income unless the parties otherwise agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper Instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1) Upon the purchase of securities, futures contracts or options
on futures contracts for the account of a Fund but only (a)
against the delivery of such securities, or evidence of title
to futures contracts, to the Custodian (or any bank, banking
firm or Corporation company doing business in the United States
or abroad which is qualified under the 1940 Act to act as a
custodian and has been designated by the Custodian as its agent
for this purpose) registered in the name of the Fund or in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer, (b) in the case of a
purchase effected through a Securities System, in accordance
with the conditions set forth in Section 2.12 hereof or (c) in
the case of repurchase agreements entered into between the
Corporation and any other party, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank
with such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Shares of a Fund issued by
the Corporation as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by a Fund,
including but not limited to the following payments for the
account of the Fund: interest; taxes; management, accounting,
transfer agent and legal fees; and operating expenses of the
Fund, whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Corporation;
(6) For payment of the amount of dividends received in respect of
securities sold short;
(7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Corporation on
behalf of a Fund signed by an officer of the Corporation and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written instructions from the Corporation to so pay in
advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been
received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund. From
such funds as may be available for the purpose of repurchasing or
redeeming Shares of a Fund, but subject to the limitations of the
Declaration of Corporation/Articles of Incorporation and any
applicable votes of the Board of the Corporation pursuant thereto,
the Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of shares of
such Fund who have delivered to the Transfer Agent a request for
redemption or repurchase of their shares including without
limitation through bank drafts, automated clearinghouse facilities,
or by other means. In connection with the redemption or repurchase
of Shares of the Funds, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders.
2.11Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or Corporation company which is itself qualified under the 1940 Act
and any applicable state law or regulation, to act as a custodian,
as its agent to carry out such of the provisions of this Section 2
as the Custodian may from time to time direct; provided, however,
that the appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a clearing
agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in
accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(1) The Custodian may keep securities of each Fund in a Securities
System provided that such securities are represented in an
account ("Account") of the Custodian in the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(2) The records of the Custodian with respect to securities of the
Funds which are maintained in a Securities System shall
identify by book-entry those securities belonging to each Fund;
(3) The Custodian shall pay for securities purchased for the
account of each Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Fund. The Custodian shall transfer securities
sold for the account of a Fund upon (i) receipt of advice from
the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the
account of a Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the Corporation at
its request. Upon request, the Custodian shall furnish the
Corporation confirmation of each transfer to or from the
account of a Fund in the form of a written advice or notice and
shall furnish to the Corporation copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of a Fund.
(4) The Custodian shall provide the Corporation with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
(5) The Custodian shall have received the initial certificate,
required by Section 9 hereof;
(6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Corporation for any loss or
damage to a Fund resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the
Securities System; at the election of the Corporation, it shall
be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that a Fund has
not been made whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall not
relieve the Custodian from using reasonable care and diligence
in making use of any Securities System.
2.13Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Corporation, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or
the Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions for a
Fund, (ii) for purpose of segregating cash or government securities
in connection with options purchased, sold or written for a Fund or
commodity futures contracts or options thereon purchased or sold
for a Fund, (iii) for the purpose of compliance by the Corporation
or a Fund with the procedures required by any release or releases
of the SEC relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution
of the Board or of the Executive Committee signed by an officer of
the Corporation and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Proper
Instructions, the Custodian shall deposit and/or maintain any
assets of a Fund and any affiliated funds which are subject to
joint repurchase transactions in an account established solely for
such transactions for the Fund and its affiliated funds. For
purposes of this Section 2.14, "affiliated funds" shall include all
investment companies and their portfolios for which subsidiaries or
affiliates of Federated Investors serve as investment advisers,
distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of segregation set
forth in Section 2.1 shall be deemed to be waived with respect to
such assets.
2.15Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of income
or other payments with respect to securities of a Fund held by it
and in connection with transfers of securities.
2.16Proxies. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than
in the name of a Fund or a nominee of a Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Corporation such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.17Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to the Corporation all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Fund and the maturity of futures contracts purchased or sold
by the Fund) received by the Custodian from issuers of the
securities being held for the Fund. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the
Corporation all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer.
If the Corporation desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Corporation shall notify the Custodian in writing at least three
business days prior to the date on which the Custodian is to take
such action. However, the Custodian shall nevertheless exercise
its best efforts to take such action in the event that notification
is received three business days or less prior to the date on which
action is required.
2.18Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more person
or persons as the Board shall have from time to time authorized.
Each such writing shall set forth the specific transaction or type
of transaction involved. Oral instructions will be deemed to be
Proper Instructions if (a) the Custodian reasonably believes them
to have been given by a person previously authorized in Proper
Instructions to give such instructions with respect to the
transaction involved, and (b) the Corporation promptly causes such
oral instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of the Corporation accompanied by a
detailed description of procedures approved by the Board, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board
and the Custodian are satisfied that such procedures afford
adequate safeguards for a Fund's assets.
2.19Actions Permitted Without Express Authority. The Custodian may in
its discretion, without express authority from the Corporation:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Corporation in such form that it
may be allocated to the affected Fund;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
each Fund except as otherwise directed by the Corporation.
2.20Evidence of Authority. The Custodian shall be protected in acting
upon any instructions, notice, request, consent, certificate or
other instrument or paper reasonably believed by it to be genuine
and to have been properly executed on behalf of a Fund. The
Custodian may receive and accept a certified copy of a vote of the
Board of the Corporation as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b)
of any determination of or any action by the Board pursuant to the
Declaration of Corporation/Articles of Incorporation as described
in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the
contrary.
2.21Notice to Corporation by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Corporation of
any receipt of cash, income or payments to the Corporation and the
release of cash or payment by the Corporation.
3. Duties of Custodian With Respect to the Books of Account and Calculation
of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of the Corporation to keep
the books of account of each Fund and/or compute the net asset value per
share of the outstanding Shares of each Fund or, if directed in writing
to do so by the Corporation, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of a Fund as
described in the Fund's currently effective prospectus and Statement of
Additional Information ("Prospectus") and shall advise the Corporation
and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Corporation to do so,
shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset
value per share and the daily income of a Fund shall be made at the time
or times described from time to time in the Fund's currently effective
Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will
meet the obligations of the Corporation and the Funds under the 1940
Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder, and specifically including identified cost records
used for tax purposes. All such records shall be the property of the
Corporation and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers,
employees or agents of the Corporation and employees and agents of the
SEC. In the event of termination of this Contract, the Custodian will
deliver all such records to the Corporation, to a successor Custodian,
or to such other person as the Corporation may direct. The Custodian
shall supply daily to the Corporation a tabulation of securities owned
by a Fund and held by the Custodian and shall, when requested to do so
by the Corporation and for such compensation as shall be agreed upon
between the Corporation and the Custodian, include certificate numbers
in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Corporation may
from time to time request, to obtain from year to year favorable
opinions from each Fund's independent public accountants/auditors with
respect to its activities hereunder in connection with the preparation
of the Fund's registration statement, periodic reports, or any other
reports to the SEC and with respect to any other requirements of such
Commission.
6. Reports to Corporation by Independent Public Accountants/Auditors.
The Custodian shall provide the Corporation, at such times as the
Corporation may reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system, internal
accounting control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian for the Fund under this Contract;
such reports shall be of sufficient scope and in sufficient detail, as
may reasonably be required by the Corporation, to provide reasonable
assurance that any material inadequacies would be disclosed by such
examination and, if there are no such inadequacies, the reports shall so
state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in carrying
out the provisions of this Contract; provided, however, that the
Custodian shall be held to any higher standard of care which would be
imposed upon the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of this Contract.
The Custodian shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Corporation) on all matters, and
shall be without liability for any action reasonably taken or omitted
pursuant to such advice, provided that such action is not in violation
of applicable federal or state laws or regulations, and is in good faith
and without negligence. Subject to the limitations set forth in Section
15 hereof, the Custodian shall be kept indemnified by the Corporation
but only from the assets of the Fund involved in the issue at hand and
be without liability for any action taken or thing done by it in
carrying out the terms and provisions of this Contract in accordance
with the above standards.
In order that the indemnification provisions contained in this Section 8
shall apply, however, it is understood that if in any case the
Corporation may be asked to indemnify or save the Custodian harmless,
the Corporation shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood
that the Custodian will use all reasonable care to identify and notify
the Corporation promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification. The Corporation shall have the option to defend the
Custodian against any claim which may be the subject of this
indemnification, and in the event that the Corporation so elects it will
so notify the Custodian and thereupon the Corporation shall take over
complete defense of the claim, and the Custodian shall in such situation
initiate no further legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall in no case
confess any claim or make any compromise in any case in which the
Corporation will be asked to indemnify the Custodian except with the
Corporation's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a
separate Agreement entered into between the Custodian and the
Corporation.
If the Corporation requires the Custodian to take any action with
respect to securities, which action involves the payment of money or
which action may, in the reasonable opinion of the Custodian, result in
the Custodian or its nominee assigned to a Fund being liable for the
payment of money or incurring liability of some other form, the
Custodian may request the Corporation, as a prerequisite to requiring
the Custodian to take such action, to provide indemnity to the Custodian
in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the
Corporation agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses, assessments,
claims and liabilities (including counsel fees) (referred to herein as
authorized charges) incurred or assessed against it or its nominee in
connection with the performance of this Contract, except such as may
arise from it or its nominee's own failure to act in accordance with the
standard of reasonable care or any higher standard of care which would
be imposed upon the Custodian by any applicable law or regulation if
such above-stated standard of reasonable care were not part of this
Contract. To secure any authorized charges and any advances of cash or
securities made by the Custodian to or for the benefit of a Fund for any
purpose which results in the Fund incurring an overdraft at the end of
any business day or for extraordinary or emergency purposes during any
business day, the Corporation hereby grants to the Custodian a security
interest in and pledges to the Custodian securities held for the Fund by
the Custodian, in an amount not to exceed 10 percent of the Fund's gross
assets, the specific securities to be designated in writing from time to
time by the Corporation or the Fund's investment adviser. Should the
Corporation fail to make such designation, or should it instruct the
Custodian to make advances exceeding the percentage amount set forth
above and should the Custodian do so, the Corporation hereby agrees that
the Custodian shall have a security interest in all securities or other
property purchased for a Fund with the advances by the Custodian, which
securities or property shall be deemed to be pledged to the Custodian,
and the written instructions of the Corporation instructing their
purchase shall be considered the requisite description and designation
of the property so pledged for purposes of the requirements of the
Uniform Commercial Code. Should the Corporation fail to cause a Fund to
repay promptly any authorized charges or advances of cash or securities,
subject to the provision of the second paragraph of this Section 8
regarding indemnification, the Custodian shall be entitled to use
available cash and to dispose of pledged securities and property as is
necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may
be terminated by either party by an instrument in writing delivered or
mailed, postage prepaid to the other party, such termination to take
effect not sooner than sixty (60) days after the date of such delivery
or mailing; provided, however that the Custodian shall not act under
Section 2.12 hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board of the
Corporation has approved the initial use of a particular Securities
System as required in each case by Rule 17f-4 under the 1940 Act;
provided further, however, that the Corporation shall not amend or
terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of
Corporation/Articles of Incorporation, and further provided, that the
Corporation may at any time by action of its Board (i) substitute
another bank or Corporation company for the Custodian by giving notice
as described above to the Custodian, or (ii) immediately terminate this
Contract in the event of the appointment of a conservator or receiver
for the Custodian by the appropriate banking regulatory agency or upon
the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Corporation shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the
Corporation, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in
the form for transfer, all securities then held by it hereunder for each
Fund and shall transfer to separate accounts of the successor custodian
all of each Fund's securities held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board
of the Corporation, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such
vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board shall have been delivered to the
Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank
or Corporation company, which is a "bank" as defined in the 1940 Act,
(delete "doing business ... Massachusetts" unless SSBT is the Custodian)
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities, funds
and other properties held by the Custodian and all instruments held by
the Custodian relative thereto and all other property held by it under
this Contract for each Fund and to transfer to separate accounts of
such successor custodian all of each Fund's securities held in any
Securities System. Thereafter, such bank or Corporation company shall
be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing
to failure of the Corporation to procure the certified copy of the vote
referred to or of the Board to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during
such period as the Custodian retains possession of such securities,
funds and other properties and the provisions of this Contract relating
to the duties and obligations of the Custodian shall remain in full
force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and the
Corporation may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Contract as may in their
joint opinion be consistent with the general tenor of this Contract.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Declaration of Corporation/Articles of Incorporation. No interpretive
or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Corporation at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to
the Custodian at address for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the Corporation or the
Custodian may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of liability
as set forth in Article XI of the Declaration of Corporation of those
Corporations which are business Trusts and agrees that the obligations
and liabilities assumed by the Corporation and any Fund pursuant to this
Contract, including, without limitation, any obligation or liability to
indemnify the Custodian pursuant to Section 8 hereof, shall be limited
in any case to the relevant Fund and its assets and that the Custodian
shall not seek satisfaction of any such obligation from the shareholders
of the relevant Fund, from any other Fund or its shareholders or from
the Corporationees, Officers, employees or agents of the Corporation, or
any of them. In addition, in connection with the discharge and
satisfaction of any claim made by the Custodian against the Corporation,
for whatever reasons, involving more than one Fund, the Corporation
shall have the exclusive right to determine the appropriate allocations
of liability for any such claim between or among the Funds.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed effective as of the 1st day of December, 1993.

ATTEST: INVESTMENT COMPANIES

/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman

ATTEST: STATE STREET BANK AND CORPORATION
COMPANY

/s/ Ed McKenzie______________ By /s/ F. J. Sidoti, Jr.__________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President

ATTEST: FEDERATED SERVICES COMPANY

/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President

EXHIBIT 1
Liberty Utility Fund, Inc.

Class A Shares
Class B Shares
Class C Shares

EXHIBIT 16 UNDER FORM N-1A
EXHIBIT 99 UNDER ITEM 601/REG. S-K

FUND NAME: PROGRESSIVE INCOME EQUITY FUND, INC.
COMPUTATION OF YIELD
AS OF: FEBRUARY 28, 1989

Dividend and/or Interest Income
for the 30 Days Ended: FEBRUARY 28, 1989 $336,411.00
-------------

Net Expenses for the Period $38,759.00
-------------

Average Daily Shares Outstanding and
Entitled to Receive Dividends 5,142,304.000
---------------

Maximum Offering Price Per Share as of:
FEBRUARY 28,1989 $9.58
------

Undistributed Net Income $0.1800
---------

YIELD = 2[$336,411.00 - $38,759.00) + 1) 6-1] =
5,142,304.00 * ($9.58 - 0.18) 7.50%
=====

EXHIBIT 16 UNDER FORM N-1A
EXHIBIT 99 UNDER ITEM 601/REG. S-K

DECLARED: QUARTERLY
PAID: QUARTERLY

SCHEDULE FOR COMPUTATION OF FUND PERFORMANCE DATA
AVERAGE TOTAL RETURN

FUND: PROGRESSIVE INCOME EQUITY FUND, INC.
PERFORMANCE SINCE INCEPTION ENDING 2-28,89

FYE: FEBRUARY 28

SINCE INCEPTION ENDING 2-28-89
Initial Investment of: $1000 on 5-27-87
Offering Price/Share = $9.12
NAV = $8.71

REINVESTMENT DATES BEGINNING PERIOD SHARE BASE
27-May-86 109.649
01-Jun-88 109.649
01-Sep-88 111.835
01-Dec-88 114.092
28-Feb-89 116.323

DIVIDEND PER SHARE CAPITAL GAIN PER SHARE
0.000 0.000
0.175 0.000
0.175 0.000
0.175 0.000
0.000 0.000

REINVESTMENT PRICE ENDING PERIOD SHARE BASE
PER SHARE
$8.71 109.649
$8.78 111.830
$8.67 114.092
$8.95 116.323
$9.15 116.323

PERIOD END PRICE TOTAL INVESTMENT VALUE
$8.71 $955.04
$8.78 $981.91
$8.67 $989.18
$8.95 $1041.09
$9.15 $1064.35

1000 (1+T) = Ending Redeemable Value
T = 6.43%

[(1 + T) 1/3040]4 = Average Annual Total Return (A)
A = 8.54%

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Liberty Utility Fund, Inc.
Class A Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 780,340,373
<INVESTMENTS-AT-VALUE> 817,581,279
<RECEIVABLES> 24,968,988
<ASSETS-OTHER> 3,047
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 842,553,314
<PAYABLE-FOR-SECURITIES> 20,970,531
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,728,625
<TOTAL-LIABILITIES> 22,699,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 821,967,900
<SHARES-COMMON-STOCK> 67,578,481
<SHARES-COMMON-PRIOR> 71,672,469
<ACCUMULATED-NII-CURRENT> 11,310,647
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (50,666,295)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,241,906
<NET-ASSETS> 742,274,091
<DIVIDEND-INCOME> 47,928,315
<INTEREST-INCOME> 3,261,445
<OTHER-INCOME> 0
<EXPENSES-NET> 9,800,969
<NET-INVESTMENT-INCOME> 41,388,791
<REALIZED-GAINS-CURRENT> (19,441,678)
<APPREC-INCREASE-CURRENT> (34,280,851)
<NET-CHANGE-FROM-OPS> (12,333,738)
<EQUALIZATION> (855,673)
<DISTRIBUTIONS-OF-INCOME> 28,067,890
<DISTRIBUTIONS-OF-GAINS> 26,912,314
<DISTRIBUTIONS-OTHER> 23,546,144
<NUMBER-OF-SHARES-SOLD> 5,157,127
<NUMBER-OF-SHARES-REDEEMED> 14,669,197
<SHARES-REINVESTED> 5,418,083
<NET-CHANGE-IN-ASSETS> (122,068,165)
<ACCUMULATED-NII-PRIOR> 14,298,106
<ACCUMULATED-GAINS-PRIOR> 9,475,267
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,347,619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,484,279
<AVERAGE-NET-ASSETS> 849,920,043
<PER-SHARE-NAV-BEGIN> 12.240
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> (0.690)
<PER-SHARE-DIVIDEND> (0.580)
<PER-SHARE-DISTRIBUTIONS> (0.400)
<RETURNS-OF-CAPITAL> (0.330)
<PER-SHARE-NAV-END> 10.980
<EXPENSE-RATIO> 110
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Liberty Utility Fund, Inc.
Class B and C Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 780,340,373
<INVESTMENTS-AT-VALUE> 817,581,279
<RECEIVABLES> 24,968,988
<ASSETS-OTHER> 3,047
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 842,553,314
<PAYABLE-FOR-SECURITIES> 20,970,531
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,728,625
<TOTAL-LIABILITIES> 22,699,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 821,967,900
<SHARES-COMMON-STOCK> 7,068,642
<SHARES-COMMON-PRIOR> 5,267,868
<ACCUMULATED-NII-CURRENT> 11,310,647
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (50,666,295)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37,241,906
<NET-ASSETS> 77,580,067
<DIVIDEND-INCOME> 47,928,315
<INTEREST-INCOME> 3,261,445
<OTHER-INCOME> 0
<EXPENSES-NET> 9,800,969
<NET-INVESTMENT-INCOME> 41,388,791
<REALIZED-GAINS-CURRENT> (19,441,678)
<APPREC-INCREASE-CURRENT> (34,280,851)
<NET-CHANGE-FROM-OPS> (12,333,738)
<EQUALIZATION> (855,673)
<DISTRIBUTIONS-OF-INCOME> 1,717,723
<DISTRIBUTIONS-OF-GAINS> 2,112,048
<DISTRIBUTIONS-OTHER> 1,864,340
<NUMBER-OF-SHARES-SOLD> 3,689,245
<NUMBER-OF-SHARES-REDEEMED> 2,136,367
<SHARES-REINVESTED> 247,985
<NET-CHANGE-IN-ASSETS> (122,068,165)
<ACCUMULATED-NII-PRIOR> 14,298,106
<ACCUMULATED-GAINS-PRIOR> 9,475,267
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,347,619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,484,279
<AVERAGE-NET-ASSETS> 849,920,043
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 0.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>