[LOGO]
Since 1955
Federated Investors
Federated Utility
Fund, Inc.
(formerly, Liberty
Utility Fund, Inc.)
8th Annual Report
February 29, 1996
Established 1988
GROWTH & INCOME
President's Message
Dear Shareholder:
I am pleased to present the 8th Annual Report for Federated Utility Fund, Inc.,
formerly known as Liberty Utility Fund, Inc. The fund's name now begins with
"Federated" to make it easy for investors to locate all Federated funds in
newspapers and other publications.
This report covers the twelve-month period from March 1, 1995, through February
29, 1996. It begins with a discussion with Linda A. Duessel, Vice President,
Passport Research, LTD., who manages the fund with Christopher H. Wiles, Vice
President, Passport Research, LTD. Following her interview are three
additional items of shareholder interest. First is a series of graphs that
display the fund's performance with income dividends reinvested, and the
investment results of making consistent investments in fund shares with
dividends reinvested. Second is a complete listing of the fund's holdings in
dividend-paying utilities, convertible securities and adjustable rate preferred
stocks. Third is the publication of the fund's financial statements.
In Federated Utility Fund, Inc's. eight-year history, approximately 63,000
shareholders have invested more than $969 million in the fund's diversified
portfolio. Consistent with a highly favorable environment for utilities during
the twelve-month period, the fund rewarded shareholders with competitive
performance based on income distributions paid and an increase in net asset
value.
<TABLE>
<CAPTION>
Total Return* Distributions Share Price Growth
<S> <C> <C> <C>
Class A Shares 21.47% $0.49 $10.98 to $12.79=16%
Class B Shares 20.45% $0.41 $10.98 to $12.77=16%
Class C Shares 20.43% $0.40 $10.98 to $12.77=16%
</TABLE>
We trust you are pleased with the positive performance of your investment in
Federated Utility Fund, Inc. Remember, reinvesting your earnings is a
convenient way to build the value of your account, and help your shares
increase through the benefit of quarterly compounding of earnings.
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
April 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total return for the
period based on offering price, which includes applicable sales charges and
contingent deferred sales charges, for Class A, Class B, and Class C Shares
was 14.78%, 14.79%, and 19.39%, respectively.
Management Discussion and Analysis
[PHOTO APPEARS HERE]
Linda A. Duessel
Vice President
Passport Research, LTD.
Q The utilities market enjoyed very strong performance in 1995. Can you
comment?
A The Standard & Poor's ("S&P") Utility Index was up a stunning 42.11% in 1995
which even outpaced the 37.58% return on the S&P 500 Index.* The key variables
in determining utility stock performance continue to be earnings and interest
rates. The rapid fall in rates during 1995 gave utilities their initial
thrust. But healthy earnings growth was also a surprise in 1995 as investors
witnessed the increased efficiencies and resulting higher margins that
restructuring can bring.
Q Will you update us on the market's behavior so far in 1996?
A In 1996, rising long-term interest rates have had a negative effect on
utilities which are interest rate sensitive by nature. Within subsectors, the
Regional Bell Operating Companies, which had an outstanding 49.74% total return
last year, gave back the most in early 1996, losing 3.96%. Electrics, which
were up fully 31.08% last year, but lagged the bond market's appreciation, have
held their value relatively well. Natural gas stocks are flat this year to
date, after an excellent 42.71% return in 1995, benefiting from an abnormally
cold winter throughout much of the country.
* The S&P Utility Index is comprised of forty different utilities that track
daily changes in the price of stocks. The S&P 500 Daily Stock Price Index of
500 Common Stocks, a composite index of common stocks in industry,
transportation, and financial and public utility companies, can be used to
compare the total returns of funds whose portfolios are invested primarily in
common stocks. These indices are unmanaged and actual investments can not be
made in indices.
Q How did Federated Utility Fund, Inc. perform during the twelve-month period
ended February 29, 1996?
A The fund posted very respectable returns. Total returns based on net asset
value were: Class A Shares, 21.47%; Class B Shares, 20.45%; and Class C Shares
20.43%.** These returns were slightly below the 22.71% return of the fund's
peer group, the Lipper Utility Fund Average.*** The fund underperformed
through much of last year due largely to its underweighting in the Baby Bells.
As I mentioned, this group had an explosive year in 1995. We believe that the
coming of long-distance, cable and cellular competition will lead to lower
profit margins for the Baby Bells. The market has begun to recognize this
fact, punishing the Baby Bell stocks early in 1996. Our relative underweight in
this area has rewarded the fund's performance thus far in 1996.
Q How are the fund's net assets currently allocated?
<TABLE>
<S> <C>
Electrics 32.7%
Telecommunications 22.8%
Natural Gas 9.7%
Non-Utility 22.5%
International Utilities 9.5%
Cash 2.5%
</TABLE>
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Total return
for the period based on offering price, which includes applicable sales
charges and contingent deferred sales charges, for Class A, Class B, and
Class C Shares was 14.78%, 14.79%, and 19.39%, respectively.
*** Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated. These figures do not
reflect sales charges.
Q How does the use of international utilities and non-utility securities help
to meet the fund's investment philosophy?
A The fund is designed to offer equity investors one of the most defensive
vehicles in the equity markets. The use of foreign utilities adds geographical
diversification to the portfolio while providing substantial growth
opportunities not widely available in the mature U.S. market. Additionally, a
portion of the portfolio is always reserved for relatively high yielding
non-utility common stocks as well as convertible bonds and preferred stocks.
These securities allow us to participate in the upside performance of the
underlying stocks, but also offer superior downside protection. Even more,
they temper the interest rate risk associated with the utility stock portion of
the portfolio.
Q Much recent discussion has centered around increasing competition in the
electric utility sector and now in the telecom sector. How have you
positioned the portfolio to meet this changing environment?
A We believe that increasing competition heightens the risk of investing in
utilities, but also opens the door to higher earnings opportunities for
companies prepared to meet the future. During the past year, we have adjusted
the mix of securities in the fund's portfolio by identifying the best
positioned companies and retaining or adding these names while removing the
more vulnerable names with questionable futures. This adjustment has lowered
the dividend yield of the fund to that of the Lipper Utility Fund Average.
However, we strongly believe that the current mix of companies held have
superior dividend growth and long-term total return prospects.
Q Can you comment on the record extended run-up in stocks, which seems to make
the fund's defensive characteristics more appealing than ever?
A As the current bull market began its sixth year, the Dow Jones Industrial
Average had gone 1907 days without a correction of 12% - the longest bull
market on record by 415 days. The yield on the S&P 500 has fallen to a
historically low 2.12%. While it is impossible to forecast the timing of a
market correction, we are able to compare current valuations to historic
valuations. By any yardstick this market advance is more than a little long in
the tooth.
Two Ways You May Seek to Invest for Success in
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Initial Investment:
If you had made an initial investment of $8,000 in the Class A Shares of
Federated Utility Fund, Inc. on 5/27/88, reinvested your dividends and capital
gains, and didn't redeem any shares, your account would be worth $19,439 on
2/29/96. You would have earned a 12.12%* average annual total return for the
8-year investment life span quite attractive for a utility stock fund,
-
especially during a time when the economic markets went through several
cycles.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 3/31/96, the Class A Shares' average annual one-year, five-year, and
since inception (5/27/88) total returns were 13.28%, 10.09%, and 11.88%,
respectively. Class B Shares' average annual one-year and since inception
(9/28/94) total returns were 13.43% and 11.06%, respectively. Class C Shares'
average annual one-year and since inception (4/27/93) total returns were 18.03%
and 6.86%, respectively.
[Graphic representation A1 omitted. See Appendix.]
* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 5.5% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
One Step at a Time:
$1,000 invested each year for 8 years (reinvesting all dividends and capital
gains) grew to $12,710.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Federated
Utility Fund, Inc. on 5/27/88, reinvested your dividends and capital gains,
and didn't redeem any shares, you would have invested only $8,000, but your
account would have reached a total value of $12,710* by 2/29/96. You would
have earned an average annual total return of 10.77%.
A practical investment plan helps you pursue long-term performance from utility
securities. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. This investment plan works for you even if you
invest only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
[Graphic representation A2 omitted. See Appendix.]
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices. All
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regard- less of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Utility Fund, Inc.
-
(formerly, Liberty Utility Fund, Inc.)
Serving a Wide Range of Investors
Federated Utility Fund, Inc. appeals to a broad range of investors seeking
current income.
The fund invests primarily in a diversified portfolio of quality equity
securities of utility companies. Fund shares are not guaranteed, and the value
of your investment may fluctuate in value. Mutual funds involve risk, including
possible loss of principal.
[Graphic representation A3 omitted. See Appendix.]
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund Inc.)
Portfolio Update
[Graphic representation A4 omitted. See Appendix.]
Federated Utility Fund, Inc. (Class A Shares)
(formerly Liberty Utility Fund, Inc. Class A Shares)
Growth of $10,000 Invested in Federated Utility Fund, Inc. (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Utility Fund, Inc. (Class A Shares) (the "Fund'') from May 27, 1988
(start of performance) to February 29, 1996, compared to the Standard & Poor's
500 Index (S&P500)+, the Standard & Poor's Utility Index (S&PUI)+ and the Dow
Jones Utility Average (DJUA)+.
[Graphic representation A5 omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% (The $10,000 investment minus $450 sales
charge = $9,550). As of October 1, 1994, the maximum sales charge is 5.50%.
The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P500, the S&PUI and the DJUA have been adjusted to
reflect reinvestment of dividends on securities in the indices and the
average.
** Total return quoted reflects all applicable current sales charges.
+ The S&P500, the S&PUI and the DJUA are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. These indices are unmanaged.
Federated Utility Fund, Inc. (Class B Shares)
(formerly Liberty Utility Fund, Inc. Class B Shares)
Growth of $10,000 Invested in Federated Utility Fund, Inc. (Class B Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Utility Fund, Inc. (Class B Shares) (the "Fund'') from September 28,
1994 (start of performance) to February 29, 1996, compared to the Standard &
Poor's 500 Index (S&P500)+, the Standard & Poor's Utility Index (S&PUI)+ and
the Dow Jones Utility Average (DJUA)+.
[Graphic representation A6 omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 5.50% contingent deferred sales charge on any
redemptions less than 1 year from purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P500,
the S&PUI and the DJUA have been adjusted to reflect reinvestment of
dividends on securities in the indices and the average.
** Total return quoted reflects all applicable contingent deferred sales
charges.
+ The S&P500, the S&PUI and the DJUA are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. These indices are unmanaged.
Federated Utility Fund, Inc. (Class C Shares)
(formerly Liberty Utility Fund, Inc. Class C Shares)
Growth of $10,000 Invested in Federated Utility Fund, Inc. (Class C Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Utility Fund, Inc. (Class C Shares) (the "Fund'') from April 27,
1993 (start of performance) to February 29, 1996, compared to the Standard &
Poor's 500 Index (S&P500)+, the Standard & Poor's Utility Index (S&PUI)+ and
the Dow Jones Utility Average (DJUA)+.
[Graphic representation A7 omitted. See Appendix.]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge on any
redemptions less than 1 year from purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P500,
the S&PUI and the DJUA have been adjusted to reflect reinvestment of
dividends on securities in the indices and the average.
** Total return quoted reflects all applicable contingent deferred sales
charges.
+ The S&P500, the S&PUI and the DJUA are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. These indices are unmanaged.
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Portfolio of Investments
- --------------------------------------------------------------------------------
February 29, 1996
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--80.9% -----------------------------------------------------------------------------------
CONSUMER DURABLES--1.1%
------------------------------------------------------------------------------
348,200 Ford Motor Co. $ 10,881,250
------------------------------------------------------------------------------ --------------
CONSUMER NON-DURABLES--1.2%
------------------------------------------------------------------------------
122,100 Philip Morris Cos., Inc. 12,087,900
------------------------------------------------------------------------------ --------------
ELECTRIC UTILITIES: CENTRAL--11.9%
------------------------------------------------------------------------------
817,300 CMS Energy Corp. 24,825,488
------------------------------------------------------------------------------
320,800 Cinergy Corp. 9,583,900
------------------------------------------------------------------------------
944,200 DPL, Inc. 22,542,775
------------------------------------------------------------------------------
724,000 Illinova Corp. 20,634,000
------------------------------------------------------------------------------
517,500 NIPSCO Industries, Inc. 19,535,624
------------------------------------------------------------------------------
633,200 Utilicorp United, Inc. 18,679,400
------------------------------------------------------------------------------ --------------
Total 115,801,187
------------------------------------------------------------------------------ --------------
ELECTRIC UTILITIES: EAST--5.1%
------------------------------------------------------------------------------
713,900 DQE, Inc. 20,881,574
------------------------------------------------------------------------------
449,200 General Public Utilities 14,992,050
------------------------------------------------------------------------------
475,300 Peco Energy Co. 13,427,225
------------------------------------------------------------------------------ --------------
Total 49,300,849
------------------------------------------------------------------------------ --------------
ELECTRIC UTILITIES: SOUTH--11.7%
------------------------------------------------------------------------------
647,700 Duke Power Co. 31,656,338
------------------------------------------------------------------------------
719,100 FPL Group, Inc. 32,089,838
------------------------------------------------------------------------------
767,200 Southern Co. 18,316,900
------------------------------------------------------------------------------
381,300 TECO Energy, Inc. 9,532,500
------------------------------------------------------------------------------
537,000 Texas Utilities Co. 21,681,374
------------------------------------------------------------------------------ --------------
Total 113,276,950
------------------------------------------------------------------------------ --------------
ELECTRIC UTILITIES: WEST--4.0%
------------------------------------------------------------------------------
672,600 Pacificorp 13,956,450
------------------------------------------------------------------------------
</TABLE>
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES: WEST--CONTINUED
------------------------------------------------------------------------------
858,100 Pinnacle West Capital Corp. $ 24,348,588
------------------------------------------------------------------------------ --------------
Total 38,305,038
------------------------------------------------------------------------------ --------------
ENERGY MINERALS--2.2%
------------------------------------------------------------------------------
263,300 Exxon Corp. 20,932,350
------------------------------------------------------------------------------ --------------
FINANCE--3.8%
------------------------------------------------------------------------------
136,800 Fleet Financial Group, Inc. 5,625,900
------------------------------------------------------------------------------
523,800 Meditrust, REIT 17,416,350
------------------------------------------------------------------------------
194,100 Mellon Bank Corp. 10,845,338
------------------------------------------------------------------------------
107,800 PNC Financial Corp. 3,301,374
------------------------------------------------------------------------------ --------------
Total 37,188,962
------------------------------------------------------------------------------ --------------
MAJOR U.S. TELECOMMUNICATIONS--22.8%
------------------------------------------------------------------------------
577,300 AT&T Corp. 36,730,713
------------------------------------------------------------------------------
516,300 Ameritech Corp. 29,751,788
------------------------------------------------------------------------------
964,200 BellSouth Corp. 38,447,474
------------------------------------------------------------------------------
856,800 GTE Corp. 36,735,300
------------------------------------------------------------------------------
1,405,400 MCI Communications Corp. 41,107,950
------------------------------------------------------------------------------
700,700 SBC Communications, Inc. 38,450,913
------------------------------------------------------------------------------ --------------
Total 221,224,138
------------------------------------------------------------------------------ --------------
NATURAL GAS DISTRIBUTION--3.7%
------------------------------------------------------------------------------
734,500 MCN Corp. 18,454,313
------------------------------------------------------------------------------
635,100 Pacific Enterprises 16,988,925
------------------------------------------------------------------------------ --------------
Total 35,443,238
------------------------------------------------------------------------------ --------------
NON-U.S. UTILITIES--5.6%
------------------------------------------------------------------------------
117,600 Compania Telecomunicacion Chile, ADR 9,731,400
------------------------------------------------------------------------------
343,300 Korea Electric Power Corp., ADR 8,325,025
------------------------------------------------------------------------------
679,100 National Power Co. PLC, ADR 14,261,100
------------------------------------------------------------------------------
182,300 Telecomunicacoes Brasileras, ADR 9,570,750
------------------------------------------------------------------------------
</TABLE>
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL OR
FOREIGN PAR
AMOUNT
OR SHARES VALUE
<S> <C> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
NON-U.S. UTILITIES--CONTINUED
------------------------------------------------------------------------------
241,000 Telefonica de Espana, ADR $ 11,839,125
------------------------------------------------------------------------------ --------------
Total 53,727,400
------------------------------------------------------------------------------ --------------
OIL/GAS TRANSMISSION--5.0%
------------------------------------------------------------------------------
466,600 Enron Corp. 17,089,224
------------------------------------------------------------------------------
229,700 Panhandle Eastern Corp. 6,575,163
------------------------------------------------------------------------------
395,500 Sonat, Inc. 13,249,250
------------------------------------------------------------------------------
233,100 Williams Cos., Inc. (The) 11,072,250
------------------------------------------------------------------------------ --------------
Total 47,985,887
------------------------------------------------------------------------------ --------------
RETAIL TRADE--0.8%
------------------------------------------------------------------------------
160,400 Penney (J.C.) Co., Inc. 7,619,000
------------------------------------------------------------------------------ --------------
TECHNOLOGY--2.0%
------------------------------------------------------------------------------
194,980 General Motors Corp., Class E 11,138,250
------------------------------------------------------------------------------
249,600 Nokia (AB), ADR 8,704,800
------------------------------------------------------------------------------ --------------
Total 19,843,050
------------------------------------------------------------------------------ --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $665,771,465) 783,617,199
------------------------------------------------------------------------------ --------------
CORPORATE BONDS--5.6%
- -------------------------------------------------------------------------------------------------
FINANCE--0.9%
------------------------------------------------------------------------------
$ 7,515,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 8,714,018
------------------------------------------------------------------------------ --------------
NON-U.S. UTILITIES--2.2%
------------------------------------------------------------------------------
26,500,000,000 Softe SA, Conv. Bond, 4.25%, 7/30/1998 21,023,985
------------------------------------------------------------------------------ --------------
RETAIL TRADE--0.9%
------------------------------------------------------------------------------
7,850,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 8,404,995
------------------------------------------------------------------------------ --------------
TECHNOLOGY--1.6%
------------------------------------------------------------------------------
3,015,000(a) 3Com Corp., Conv. Bond, 10.25%, 11/1/2001 4,929,525
</TABLE>
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<S> <C> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
- ------------------------------------------------------------------------------
$ 2,990,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 $ 3,513,250
------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
7,200,000(a) Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 7,542,000
------------------------------------------------------------------------------ --------------
Total 15,984,775
------------------------------------------------------------------------------ --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $50,993,180) 54,127,773
------------------------------------------------------------------------------ --------------
PREFERRED STOCKS--10.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--3.7%
------------------------------------------------------------------------------
65,500 International Paper Co., Cumulative Conv. Pfd., $2.63 3,035,925
------------------------------------------------------------------------------
104,000(a) International Paper Co., Cumulative Conv. Pfd., Series 144A, $2.63 4,820,400
------------------------------------------------------------------------------
402,100 James River Corp. of Virginia, Cumulative DECS, Series P, $1.55 10,454,600
------------------------------------------------------------------------------
357,050 Reynolds Metals Co., PRIDES, $3.30 17,138,400
------------------------------------------------------------------------------ --------------
Total 35,449,325
------------------------------------------------------------------------------ --------------
CONSUMER DURABLES--0.6%
------------------------------------------------------------------------------
405,500 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 6,285,250
------------------------------------------------------------------------------ --------------
FINANCE--2.6%
------------------------------------------------------------------------------
293,300 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 15,838,200
------------------------------------------------------------------------------
134,100 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 9,688,725
------------------------------------------------------------------------------ --------------
Total 25,526,925
------------------------------------------------------------------------------ --------------
NON-U.S. UTILITIES--1.7%
------------------------------------------------------------------------------
307,500(a) Cointel, Telefonica de Argentina SA, PRIDES, $5.04 16,374,375
------------------------------------------------------------------------------ --------------
OIL/GAS TRANSMISSION--1.0%
------------------------------------------------------------------------------
122,500 Williams Cos., Inc. (The), Conv. Pfd., $7.00 9,667,823
------------------------------------------------------------------------------ --------------
SERVICES--1.1%
------------------------------------------------------------------------------
336,700 Browning-Ferris Industries, Inc., ACES, $2.58 10,984,838
------------------------------------------------------------------------------ --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $99,984,578) 104,288,536
</TABLE>
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
(B) REPURCHASE AGREEMENTS--2.5%
- -------------------------------------------------------------------------------------------------
$ 24,085,000 BT Securities Corporation, 5.45%, dated 2/29/1996, due 3/1/1996 $ 24,085,000
------------------------------------------------------------------------------ --------------
TOTAL INVESTMENTS (IDENTIFIED COST $840,834,223)(C) $ 966,118,508
------------------------------------------------------------------------------ --------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $33,666,300 which represents 3.5% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $840,953,813.
The net unrealized appreciation/depreciation of investments on a federal
tax basis amounts to $125,164,695 which is comprised of $137,130,440
appreciation and $11,965,745 depreciation at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($969,200,537) at February 29, 1996.
The following acronyms are used throughout this portfolio:
ACES--Adjustable Convertible Extendable Securities
ADR--American Depositary Receipt
DECS--Dividend Enhanced Convertible Stock
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
STRYPES--Structured Yield Enhanced Product Exchangeable for Common Stock
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 29, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $840,834,223, and tax cost $840,953,813) $966,118,508
- ---------------------------------------------------------------------------------------------------
Cash 6,392
- ---------------------------------------------------------------------------------------------------
Income receivable 4,394,929
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 1,358,910
- --------------------------------------------------------------------------------------------------- -----------
Total assets 971,878,739
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------
Payable for investments purchased $ 491,559
- ----------------------------------------------------------------------------------------
Payable for shares redeemed 1,713,509
- ----------------------------------------------------------------------------------------
Payable for taxes withheld 2,696
- ----------------------------------------------------------------------------------------
Accrued expenses 470,438
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 2,678,202
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS for 75,771,915 shares outstanding $969,200,537
- --------------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $816,233,399
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of
assets and liabilities in foreign currency 125,296,467
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 27,724,936
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (54,265)
- --------------------------------------------------------------------------------------------------- -----------
Total Net Assets $969,200,537
- --------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($816,686,904 / 63,833,024 shares outstanding) $12.79
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/94.50 of $12.79)* $13.53
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share $12.79
- --------------------------------------------------------------------------------------------------- -----------
CLASS B SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($85,649,893 / 6,704,820 shares outstanding) $12.77
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $12.77
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (94.50/100 of $12.77)** $12.07
- --------------------------------------------------------------------------------------------------- -----------
CLASS C SHARES:
- ---------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($66,863,740 / 5,234,071 shares outstanding) $12.77
- --------------------------------------------------------------------------------------------------- -----------
Offering Price Per Share $12.77
- --------------------------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (99.00/100 of $12.77)** $12.64
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*See "What Shares Cost" in the Prospectus.
**See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended February 29, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $179,479) $41,672,950
- ---------------------------------------------------------------------------------------------------
Interest 4,764,698
- --------------------------------------------------------------------------------------------------- -----------
Total income 46,437,648
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee $6,662,590
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 672,236
- ---------------------------------------------------------------------------------------
Custodian fees 125,034
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,135,936
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 9,702
- ---------------------------------------------------------------------------------------
Auditing fees 23,407
- ---------------------------------------------------------------------------------------
Legal fees 5,083
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 143,033
- ---------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 381,781
- ---------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 466,848
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 1,937,945
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 127,260
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 155,616
- ---------------------------------------------------------------------------------------
Share registration costs 133,865
- ---------------------------------------------------------------------------------------
Printing and postage 183,550
- ---------------------------------------------------------------------------------------
Insurance premiums 14,882
- ---------------------------------------------------------------------------------------
Taxes 122,070
- ---------------------------------------------------------------------------------------
Miscellaneous 13,902
- --------------------------------------------------------------------------------------- ----------
Total expenses 12,314,740
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee $(1,225,393)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (53,968)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (20,578)
- --------------------------------------------------------------------------- ----------
Total waivers (1,299,939)
- --------------------------------------------------------------------------------------- ----------
Net expenses 11,014,801
- --------------------------------------------------------------------------------------------------- -----------
Net investment income 35,422,847
- --------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 47,885,694
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 88,054,561
- --------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments and foreign currency 135,940,255
- --------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $171,363,102
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 35,422,847 $ 41,388,791
- ------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions ($35,892,535 net gain and $7,917,809 net loss,
respectively, as computed for federal tax purposes) 47,885,694 (19,441,678)
- ------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency 88,054,561 (34,280,851)
- ------------------------------------------------------------------------ ------------------- -------------------
Change in net assets resulting from operations 171,363,102 (12,333,738)
- ------------------------------------------------------------------------ ------------------- -------------------
NET EQUALIZATION CREDITS (DEBITS)-- (318,431) (855,673)
- ------------------------------------------------------------------------ ------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Class A Shares (31,171,022) (46,462,395)
- ------------------------------------------------------------------------
Class B Shares (1,826,388) (67,769)
- ------------------------------------------------------------------------
Class C Shares (2,080,469) (3,044,848)
- ------------------------------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------------------------------
Class A Shares (381,611) --
- ------------------------------------------------------------------------
Class B Shares -- --
- ------------------------------------------------------------------------
Class C Shares (30,642) --
- ------------------------------------------------------------------------
Distributions from net realized gains on investments and foreign
currency transactions
- ------------------------------------------------------------------------
Class A Shares -- (8,786,234)
- ------------------------------------------------------------------------
Class B Shares -- --
- ------------------------------------------------------------------------
Class C Shares -- (689,533)
- ------------------------------------------------------------------------
Tax return of capital distribution
- ------------------------------------------------------------------------
Class A Shares -- (23,589,376)
- ------------------------------------------------------------------------
Class B Shares -- (34,407)
- ------------------------------------------------------------------------
Class C Shares -- (1,545,897)
- ------------------------------------------------------------------------ ------------------- -------------------
Change in net assets resulting from distributions to
shareholders (35,490,132) (84,220,459)
- ------------------------------------------------------------------------ ------------------- -------------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------
Proceeds from sale of shares 149,459,995 97,809,978
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 26,442,124 62,775,867
- ------------------------------------------------------------------------
Cost of shares redeemed (162,110,279) (185,244,140)
- ------------------------------------------------------------------------ ------------------- -------------------
Change in net assets resulting from share transactions 13,791,840 (24,658,295)
- ------------------------------------------------------------------------ ------------------- -------------------
Change in net assets 149,346,379 (122,068,165)
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 819,854,158 941,922,323
- ------------------------------------------------------------------------ ------------------- -------------------
End of period $ 969,200,537 $ 819,854,158
- ------------------------------------------------------------------------ ------------------- -------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 29.
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28 OR 29,
1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.98 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.48 0.55 0.60 0.58 0.68 0.71 0.71
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 1.82 (0.69) -- 1.44 0.92 0.43 0.79
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 2.30 (0.14) 0.60 2.02 1.60 1.14 1.50
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.48) (0.66) (0.61) (0.66) (0.64) (0.70) (0.76)
- ---------------------------------------------
Distributions from net realized gain on
investment and foreign currency transactions -- (0.12) (0.04) (0.10) (0.06) (0.13) (0.07)
- ---------------------------------------------
Distributions in excess of net investment
income (b) (0.01) -- -- -- -- -- --
- ---------------------------------------------
Tax return of capital distribution -- (0.34) -- -- -- -- --
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.49) (1.12) (0.65) (0.76) (0.70) (0.83) (0.83)
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 12.79 $ 10.98 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82
- --------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 21.47% (0.98%) 4.93% 19.26% 16.48% 12.41% 16.72%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 1.14% 1.10% 1.12% 1.04% 1.05% 1.02% 1.02%
- ---------------------------------------------
Net investment income 4.09% 4.95% 4.81% 5.98% 6.31% 7.41% 7.17%
- ---------------------------------------------
Expense waiver/reimbursement (d) 0.15% 0.21% 0.17% 0.01% 0.19% 0.51% 0.74%
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $816,687 $742,274 $877,513 $739,511 $375,656 $125,599 $48,050
- ---------------------------------------------
Portfolio turnover 76% 55% 24% 18% 35% 45% 37%
- ---------------------------------------------
<CAPTION>
<S> <C> <C>
1989 1988(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.15 $ 9.30
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.72 0.55
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.02) (0.31)
- --------------------------------------------- --------- -----
Total from investment operations 0.70 0.24
- --------------------------------------------- --------- -----
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.70) (0.39)
- ---------------------------------------------
Distributions from net realized gain on
investment and foreign currency transactions -- --
- ---------------------------------------------
Distributions in excess of net investment
income (b) -- --
- ---------------------------------------------
Tax return of capital distribution -- --
- --------------------------------------------- --------- -----
Total distributions (0.70) (0.39)
- --------------------------------------------- --------- -----
NET ASSET VALUE, END OF PERIOD $ 9.15 $ 9.15
- --------------------------------------------- --------- -----
TOTAL RETURN (C) 8.00% 3.25%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 1.00% 1.56%*
- ---------------------------------------------
Net investment income 8.04% 8.24%*
- ---------------------------------------------
Expense waiver/reimbursement (d) 0.40% 0.38%*
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $410,575 $52,947
- ---------------------------------------------
Portfolio turnover 34% 17%
- ---------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 5, 1987 (date of initial
public investment) to February 29, 1988.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge 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.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 29.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28 OR 29,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.98 $ 10.92
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------
Net investment income 0.43 0.22
- -------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency 1.77 (0.04)
- ------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 2.20 0.18
- ------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------------------------------------------------------
Distributions from net investment income (0.41) (0.08)
- -------------------------------------------------------------------------------------------
Tax return of capital distribution -- (0.04)
- ------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.41) (0.12)
- ------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.77 $ 10.98
- ------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN(B) 20.45% 2.16%
- -------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------------------------------------
Expenses 1.90% 1.87%*
- -------------------------------------------------------------------------------------------
Net investment income 3.19% 4.53%*
- -------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% 0.25%*
- -------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 85,650 $ 18,780
- -------------------------------------------------------------------------------------------
Portfolio turnover 76% 55%
- -------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 29.
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28 OR 29
1996 1995 1994(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.98 $ 12.23 $ 12.27
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.39 0.42 0.48
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign
currency 1.80 (0.64) (0.07)
- ---------------------------------------------------------------------------- --------- --------- -----------
Total from investment operations 2.19 (0.22) 0.41
- ---------------------------------------------------------------------------- --------- --------- -----------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions from net investment income (0.39) (0.60) (0.41)
- ----------------------------------------------------------------------------
Distributions from net realized gain on investment and foreign currency
transactions -- (0.13) (0.04)
- ----------------------------------------------------------------------------
Distributions in excess of net investment income (b) (0.01) -- --
- ----------------------------------------------------------------------------
Tax return of capital distribution -- (0.30) --
- ---------------------------------------------------------------------------- --------- --------- -----------
Total distributions (0.40) (1.03) (0.45)
- ---------------------------------------------------------------------------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.77 $ 10.98 $ 12.23
- ---------------------------------------------------------------------------- --------- --------- -----------
TOTAL RETURN (C) 20.43% (1.66%) 3.28%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses 1.87% 1.86% 1.87%*
- ----------------------------------------------------------------------------
Net investment income 3.35% 4.19% 4.02%*
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.17% 0.21% 0.17%*
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 66,864 $ 58,800 $ 64,409
- ----------------------------------------------------------------------------
Portfolio turnover 76% 55% 24%
- ----------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 30, 1993 (date of initial
public investment) to February 28, 1994.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge 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.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
(formerly, Liberty Utility Fund, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
February 29, 1996
(1) ORGANIZATION
Federated Utility Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The primary investment objective of the Fund is
current income and long-term growth of income. The Fund offers three classes of
shares: Class A Shares, Class B Shares and Class C Shares.
Effective March 30, 1996, the Fund added Class F Shares.
The Fund's Board of Directors approved a change in the name of the Fund as
follows:
<TABLE>
<S> <C>
EFFECTIVE DATE NEW NAME
March 30, 1996 Federated Utility Fund, Inc.
</TABLE>
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed income and
asset-backed securities) are valued at the mean of the latest bid and asked
price as provided by an independent pricing service. Listed equity
securities (and investments in Closed-End Investment Companies) are valued
at the last sale price reported on a national securities exchange. Unlisted
securities and private placement securities are generally valued at the
mean of the latest bid and asked price as provided by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions and equalization. The following
reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED DISTRIBUTIONS
ACCUMULATED NET REALIZED IN EXCESS OF NET
PAID IN CAPITAL GAIN/LOSS INVESTMENT INCOME
<S> <C> <C>
($318,431) ($ 13,020) $ 331,451
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN CURRENCY COMMITMENTS--The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Risks may
arise upon entering these transactions from the potential inability of
counter-parts to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign
currency transactions are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial
statement purpose as unrealized until the settlement date.
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at February 29,
1996 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
3Com Corp. 11/30/95-12/1/95 $ 4,787,410
Cointel/Telefonica de Argentina SA 2/24/94-6/22/95 19,451,661
International Paper Co. 11/30/95-12/8/95 4,720,834
Solectron Corp. 2/15/96-2/16/96 7,211,248
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At February 29, 1996, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
POUND OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A 375,000,000
Class B 250,000,000
Class C 375,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, 1996 FEBRUARY 28, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Shares sold 5,648,312 $ 67,001,561 5,157,127 $ 57,323,665
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 2,093,790 23,963,889 5,418,083 60,027,990
- -------------------------------------------------
Shares redeemed (11,487,559) (134,618,367) (14,669,198) (161,671,999)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class A share
transactions (3,745,457) $ (43,652,917) (4,093,988) $ (44,320,344)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 29, 1996 FEBRUARY 28, 1995
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Shares sold 5,569,457 $ 65,886,136 1,728,390 $ 18,557,302
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 97,013 1,137,632 4,400 46,586
- -------------------------------------------------
Shares redeemed (672,672) (8,251,465) (21,768) (233,240)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class B share
transactions 4,993,798 $ 58,772,303 1,711,022 $ 18,370,648
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 29, 1996 FEBRUARY 28, 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Shares sold 1,400,958 $ 16,572,299 1,960,855 $ 21,929,011
- -------------------------------------------------
Shares issued to shareholders in
payment of distributions declared 115,628 1,340,603 243,585 2,701,291
- -------------------------------------------------
Shares redeemed (1,640,135) (19,240,448) (2,114,688) (23,338,901)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class C share
transactions (123,549) $ (1,327,546) 89,752 $ 1,291,401
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from share
transactions 1,124,792 13,791,840 (2,293,214) (24,658,295)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Passport Research Ltd., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.75% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp., the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class B and Class C shares. The Plan
provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate Federated Securities Corp.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS ASSETS OF CLASS
<S> <C>
Class B .75%
Class C .75%
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to .25% of daily average net assets of the Fund shares for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Shareholder
Services Company serves as transfer and dividend disbursing agent for the
Fund. The fee paid to Federated Shareholder Services Company is based on
the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the
level of the Fund's average daily net assets for the period, plus
out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
February 29, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 693,653,735
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 643,636,308
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Directors and Shareholders of
FEDERATED UTILITY FUND, INC.:
(formerly, Liberty Utility Fund, Inc.)
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Utility Fund, Inc. as of February 29,
1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and financial highlights for the periods presented therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 29, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Utility Fund, Inc. at February 29, 1996, and the results of its
operations for the year then ended, changes in its net assets for each of the
two years in the period then ended, and financial highlights for the periods
presented therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 12, 1996
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO] Federated Investors
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314286105
Cusip 314286204
Cusip 314286303
G01049-01 (4/96)
[RECYCLED PAPER LOGO]
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of
the narrative text above it. The "x" axis reflects computation periods from
5/27/88 to 2/29/96. The "y" axis is measured in increments of $4,000 ranging
from $0 to $20,000 and indicates that the ending value of hypothetical
initial investment of $8,000 in the fund's Class A Shares, assuming a 5.5%
sales charge and the reinvestment of all capital gains and dividends, would
have grown to $19,439 on 2/29/96.
A2. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of
the narrative text above it. The "x" axis reflects computation periods from
5/27/88 to 2/29/96. The "y" axis is measured in increments of $2,000 ranging
from $0 to $14,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 in the fund's Class A Shares, assuming the reinvestment
of all capital gains and dividends, would have grown to $12,710 on 2/29/96.
A3. The graphic presentation here displayed consists of a two-column chart
outlining "Some of the Fund's Major Shareholder Groups." The information is
as follows: Individuals and Joint Tenants, $237,885,475; IRA's, $146,573,354;
Trusts, $40,301,870; Custodians (under Uniform Gift to Minors Act),
$8,856,225; and Corporations, $4,648,270.
A4. The graphic presentation here displayed consists of a two-column chart
outlining the Fund's "Top Ten Holdings as a percentage of market value as of
2/29/96." The information is as follows: MCI Communications, 4.25%; SBC
Communications, 3.98%; BellSouth, 3.98%; GTE, 3.80%; AT&T, 3.80%; FPL Group,
3.32%; Duke Power, 3.28%; Ameritech, 3.08%; CMS Energy Corp., 2.57%; and
Pinnacle West, 2.52%.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class
A Shares of Federated Utility Fund, Inc. based on a 4.5% sales load are
represented by a solid line. The Standard & Poor's 500 Index (the "S&P 500")
is represented by a double broken dotted line. The Standard & Poor's Utility
Index (the "S&PUI) is represented by a dotted line and the Dow Jones Utility
Average (the "DJUA") is represented by a bold solid line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the S&P 500,
the S&PUI, and the DJUA. The "x" axis reflects computation periods from
5/27/88 to 2/29/96. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
fund's Class A Shares based on a 4.5% sales load, as compared to the S&P 500,
the S&PUI, and the DJUA; the ending values were $24,567, $30,978, $29,068,
and $20,848, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total Returns
for the period ended 2/29/96, beginning with the inception date of the fund
(5/27/88), and the one-year and five-year, periods thereafter, the Average
Annual Total Returns were 12.12%, 14.78%, and 10.63%, respectively.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
S&P 500 is represented by a double broken dotted line. The S&PUI is
represented by a dotted line and the DJUA is represented by a bold solid
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class B Shares of the fund
and the S&P 500, the S&PUI, and the DJUA. The "x" axis reflects computation
periods from 9/28/94 to 2/29/96. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class B Shares, as compared to the S&P 500, the
S&PUI, and the DJUA; the ending values were $12,305, $14,355, $13,801, and
$13,211, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class B Shares Average Annual Total Returns
for the period ended 2/29/96; beginning with the inception date of the fund
(9/28/94), and the one-year period thereafter; the Average Annual Total
Returns were 12.37% and 14.79%, respectively.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
S&P 500 is represented by a double broken dotted line. The S&PUI is
represented by a dotted line and the DJUA is represented by a bold solid
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Class C Shares of the fund
and the S&P 500, the S&PUI, and the DJUA. The "x" axis reflects computation
periods from 4/27/93 to 2/29/96. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class C Shares, as compared to the S&P 500, the
S&PUI, and the DJUA; the ending values were $12,232, $15,702, $ 13,424, and
$10,926, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class C Shares Average Annual Total Returns
for the period ended 2/29/96; beginning with the inception date of the fund
(4/27/93), and the one-year period thereafter; the Average Annual Total
