[LOGO] FEDERATED INVESTORS
Since 1955
Federated Utility
Fund, Inc.
9th Annual Report
February 28, 1997
Established 1988
President's Message
[PHOTO APPEARS HERE]
Dear Shareholder:
Federated Utility Fund, Inc. was created in 1988, and I am pleased to present
the 9th Annual Report for the fund.
This report covers the 12-month period from March 1, 1996, through February 28,
1997. It begins with a discussion with portfolio manager Linda Duessel, Vice
President, Passport Research, LTD. Following her interview are three additional
items of shareholder interest. First, a series of graphs display the fund's
performance with a lump sum investment with dividends reinvested and with
systematic investments in the fund with dividends reinvested. Second is a
complete listing of the fund's holdings. Third is the publication of the fund's
financial statements.
Utility stocks have been a traditional attractive investment as they provide
critical, ongoing services to every civilized society in the world. This year
marks the fund's tenth year of helping shareholders participate in the income
and growth opportunities of U.S. and international utilities.
Over the 12-month reporting period, the fund's diversified portfolio of 42
dividend-paying utility stocks, convertible securities and high yielding common
stocks rewarded shareholders with highly competitive performance through income
and gains distributions, and an increase in net asset value.
<TABLE>
<CAPTION>
Total Return* Income Capital Share Price Growth
Gains
<S> <C> <C> <C> <C>
Class A Shares 14.34% $0.52 $0.74 $12.79 to $13.27=4%
Class B Shares 13.60% $0.40 $0.74 $12.77 to $13.28=4%
Class C Shares 13.58% $0.40 $0.74 $12.77 to $13.28=4%
Class F Shares 13.39% $0.36 $0.36 $12.37 to $13.27=7%
</TABLE>
The current volatility in the stock market has caused individual and
institutional investors to again examine the defensive characteristics of good,
dividend-paying utility stocks, for example, FPL Group, Southern Co., Texas
Utilities, and Pacificorp, just to name a few in our portfolio.
We trust you were pleased with the positive performance of your investment in
the fund. Remember, reinvesting your earnings is a convenient way to build the
number of shares in your account and to gain an increase in income through the
benefit of monthly compounding of dividends.
As always, we welcome your comments and suggestions.
Sincerely,
/s/Richard B. Fisher
Richard B. Fisher
President
April 15, 1997
* 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 returns for the
period based on offering price for Class A, B, C, and F Shares were 8.08%,
7.62%, 12.47% and 11.28%, respectively. Total return for Class F Shares is from
the inception date (June 1, 1996 through February 28, 1997).
Management Discussion and Analysis
[PHOTO APPEARS HERE]
Linda A. Duessel
Vice President
Passport Research, LTD.
Q After weakness early in 1996, the utility market recovered somewhat. Can
you comment?
A In a mixed environment for bonds, the interest-sensitive utilities market
experienced varied results depending on the sector. Even though electric stocks
were flat throughout the period, strong natural gas prices and takeover
speculation fueled a constant and impressive rise in natural gas stocks
throughout the year. Also, the telephone sector, having suffered through much
of the year, began a strong recovery in early September based on healthy
earnings growth and an apparently oversold position.
Q Federated Utility Fund, Inc. has continually outperformed the market over
the long-term as measured by the Standard & Poor's Utility Index. Did the fund
continue this trend over the fiscal year ended February 28, 1997?
A Yes. For the 12-month period ended February 28, 1997, the fund's Class A
Shares provided more than two and one-half times the total return of the
overall utility market, as measured by the Standard & Poor's Utility Index.*
The Class A Shares of the fund returned 14.34% based on net asset value,
compared to a return of 5.54% for the Index. With total returns of 13.60%,
13.58% and 13.39%, based on net asset value, the fund's Class B, C and F
Shares also outperformed the Index.**
* Standard & Poor's Utility Index is an unmanaged index comprised of 40
different utilities that track daily changes in the price of stocks.
Investments cannot be made in an index. Standard & Poor's removed telephone
utilities from its utility index and placed them in a separate S&P
Communications Index on July 1, 1996. In the future, we will compare the fund's
performance with both the S&P Utility Index, representing electric and natural
gas sectors, and the S&P Communications Index.
** 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 returns for the period,
based on offering price, for Class A, B, C and F Shares were 8.08%, 7.62%,
12.47% and 11.28%, respectively. Total return for Class F Shares is from the
inception date (June 1, 1996 through February 28, 1997).
Q What strategies accounted for such a high level of performance?
A The fund's performance benefited from an 11% exposure to the natural gas
sector, by far the strongest domestic utility sector during the period.
Additionally, international investments, which were held by the fund to
diversify the risk of U.S. utilities and to seek growth superior to that of the
mature U.S. utility market, performed quite well.* Finally, the non-utility
holdings, comprised of convertible securities and high yielding common stock
from a variety of industries, allowed the fund to participate in the strength
of the broad market.
Q How are the fund's assets currently allocated?
A The fund's assets are allocated as follows:
<TABLE>
<CAPTION>
Sector % of net assets # of issues
<S> <C> <C>
Electrics 35.8% 16
Telecommunications 18.9% 9
Natural Gas 10.8% 8
Non-Utility 23.8% 25
International Utilities 9.7% 10
</TABLE>
* Foreign utilities involve special risks including currency risk and increased
volatility.
Q Alan Greenspan has raised interest rates to control what he sees as
inflationary in the economy. How will his actions affect the fund's holdings?
A The recent hike in short-term interest rates is an effort by the Federal
Reserve Board to temper inflation risks. On a short-term basis, this has been
negative for both stock and bond markets, utilities included. However, if this
action keeps economic growth and inflation under control, we should be in an
excellent environment for the performance of utility stocks.
Q Are you bullish about fundamental developments in the changing utility
industry?
A Favorable developments have been occurring in the utility arena on several
fronts. We have seen accelerating merger activity in and among utility
subsectors with numerous deals proposed at significant premiums to
pre-announcement stock prices. In telecommunications, for example, British
Telecommunications is merging with MCI Communications to become the fourth
largest long distance company in the world. Enron Corporation, the largest
marketer of natural gas in North America, agreed to buy Portland General, and
Duke Power agreed to merge with PanEnergy in one of the largest mergers in the
electric utility industry to date. These mergers are creating very strong
companies that should be poised to thrive in the competitive future. We expect
to see more mergers throughout 1997.
Furthermore, good news is expected to come from more and more states on the
deregulation front, as competitive rulings are allowing for the recovery of
electric utility stranded costs, and providing companies the opportunity to
retain earnings improvements for the benefit of their shareholders.
Two Ways You May Seek to Invest for Success in
Federated Utility Fund, Inc.
Initial Investment:
If you had made an initial investment of $9,000 in the Class A Shares of
Federated Utility Fund, Inc. on 5/27/88, reinvested your dividends and capital
gains, and did not redeem any shares, your account would be worth $25,005 on
2/28/97. You would have earned a 12.37%* average annual total return for the
9-year investment life span.
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 3/31/97, the Class A Shares' average annual 1-year, 5-year, and since
inception (5/27/88) total returns were 5.39%, 9.64%, and 11.84%, respectively.
Class B Shares' average annual 1-year and since inception (9/28/94) total
returns were 4.71% and 11.26%, respectively. Class C Shares' average annual
1-year and since inception (4/27/93) total returns were 9.53% and 7.81%,
respectively. Class F Shares' cumulative total return since inception (6/1/96)
was 7.66%.
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX 1
* 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 5.50% 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.
One Step at a Time:
$1,000 invested each year for 9 years (reinvesting all dividends and capital
gains) grew to $15,604.
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
did not redeem any shares, you would have invested only $9,000, but your
account would have reached a total value of $15,604* by 2/28/97. You would have
earned an average annual total return of 11.36%.
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, money, and
compounding to work!
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX 2
* 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, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Federated Utility Fund, Inc.
Portfolio Update
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Top Ten Utility Holdings as of 2/28/97
- --------------------------------------------------------------------
Asset Value % of
(in Millions) Description Yield Net Assets
- --------------------------------------------------------------------
<S> <C> <C> <C>
48.2 BellSouth Corp. 3.07% 3.04%
- --------------------------------------------------------------------
47.6 GTE Corp. 4.02% 3.01%
- --------------------------------------------------------------------
47.3 Pinnacle West Capital Corp. 3.52% 2.99%
- --------------------------------------------------------------------
47.3 FPL Group, Inc. 4.22% 2.99%
- --------------------------------------------------------------------
47.2 Ameritech Corp. 3.55% 2.98%
- --------------------------------------------------------------------
46.7 Duke Power Co. 4.79% 2.95%
- --------------------------------------------------------------------
45.4 CMS Energy Corp. 3.30% 2.87%
- --------------------------------------------------------------------
45.0 Sprint Corp. 2.20% 2.85%
- --------------------------------------------------------------------
42.3 DPL, Inc. 5.52% 2.67%
- --------------------------------------------------------------------
39.9 Pacific Telesis Group 3.09% 2.52%
- --------------------------------------------------------------------
</TABLE>
Federated 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 28, 1997, 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 OMITTED. SEE APPENDIX 3
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 their 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% at the start of performance. (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 Securities and Exchange Commission requires to
be reflected in the Fund's performance. These indices are unmanaged.
Federated 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 28, 1997, 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 OMITTED. SEE APPENDIX 4
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 their 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 4.00% contingent deferred sales charge on any
redemptions less than 3 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of all dividends
and distributions. The S&P 500, 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 Securities and Exchange Commission requires to
be reflected in the Fund's performance. These indices are unmanaged.
Federated 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 28, 1997, 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)+.
GRAPIC REPRESENTATION OMITTED SEE APPENDIX 5
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 their 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 Securities and Exchange Commission requires to
be reflected in the Fund's performance. These indices are unmanaged.
Federated Utility Fund, Inc. (Class F Shares)
Growth of $10,000 Invested in Federated Utility Fund, Inc. (Class F Shares)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Utility Fund, Inc. (Class F Shares) (the "Fund'') from June 1, 1996
(start of performance) to February 28, 1997, 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 OMITTED SEE APPENDIX 6
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 their 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 1.00%. (The $10,000 investment minus $100 sales
charge = $9,900). The ending value of the Fund reflects a contingent deferred
sales charge of 1.00% on any redemption less than 4 years from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500, 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 Securities and Exchange Commission requires to
be reflected in the Fund's performance. These indices are unmanaged.
Federated Utility Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<CAPTION>
SHARES VALUE
- -------------- ------------------------------------------------------------------------------ ----------------
COMMON STOCKS--77.1%
- ----------------------------------------------------------------------------------------------
CONSUMER DURABLES--1.0%
------------------------------------------------------------------------------
<C> <S> <C>
477,500 Ford Motor Co. $ 15,697,812
------------------------------------------------------------------------------ ----------------
CONSUMER NON-DURABLES--1.9%
------------------------------------------------------------------------------
227,200 Philip Morris Cos., Inc. 30,700,400
------------------------------------------------------------------------------ ----------------
ELECTRIC UTILITIES: CENTRAL--11.1%
------------------------------------------------------------------------------
1,385,300 CMS Energy Corp. 45,368,575
------------------------------------------------------------------------------
588,400 Cinergy Corp. 20,299,800
------------------------------------------------------------------------------
1,717,000 DPL, Inc. 42,281,125
------------------------------------------------------------------------------
1,249,400 Illinova Corp. 31,235,000
------------------------------------------------------------------------------
900,000 NIPSCO Industries, Inc. 35,887,500
------------------------------------------------------------------------------ ----------------
Total 175,072,000
------------------------------------------------------------------------------ ----------------
ELECTRIC UTILITIES: EAST--5.8%
------------------------------------------------------------------------------
1,297,900 DQE, Inc. 38,450,287
------------------------------------------------------------------------------
733,000 General Public Utility, Inc. 25,655,000
------------------------------------------------------------------------------
1,209,200 Peco Energy Co. 27,207,000
------------------------------------------------------------------------------ ----------------
Total 91,312,287
------------------------------------------------------------------------------ ----------------
ELECTRIC UTILITIES: SOUTH--12.4%
------------------------------------------------------------------------------
1,056,000 Duke Power Co. 46,728,000
------------------------------------------------------------------------------
1,039,700 FPL Group, Inc. 47,306,350
------------------------------------------------------------------------------
1,594,200 Southern Co. 34,673,850
------------------------------------------------------------------------------
1,386,700 TECO Energy, Inc. 33,800,813
------------------------------------------------------------------------------
834,700 Texas Utilities Co. 33,701,013
------------------------------------------------------------------------------ ----------------
Total 196,210,026
------------------------------------------------------------------------------ ----------------
ELECTRIC UTILITIES: WEST--6.5%
------------------------------------------------------------------------------
1,227,100 Pacificorp 25,308,938
------------------------------------------------------------------------------
1,515,000 Pinnacle West Capital Corp. 47,343,750
------------------------------------------------------------------------------
754,000 Portland General Corp. 29,500,250
------------------------------------------------------------------------------ ----------------
Total 102,152,938
------------------------------------------------------------------------------ ----------------
</TABLE>
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -------------- ------------------------------------------------------------------------------ ----------------
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------------------
ENERGY MINERALS--0.5%
------------------------------------------------------------------------------
<C> <S> <C>
79,500 Exxon Corp. $ 7,940,062
------------------------------------------------------------------------------ ----------------
FINANCE--3.9%
------------------------------------------------------------------------------
1,161,300 Meditrust, REIT 44,710,050
------------------------------------------------------------------------------
220,600 Mellon Bank Corp. 17,730,725
------------------------------------------------------------------------------ ----------------
Total 62,440,775
------------------------------------------------------------------------------ ----------------
MAJOR U.S. TELECOMMUNICATIONS--17.4%
------------------------------------------------------------------------------
740,000 Ameritech Corp. 47,175,000
------------------------------------------------------------------------------
1,027,300 BellSouth Corp. 48,154,687
------------------------------------------------------------------------------
1,018,400 GTE Corp. 47,610,200
------------------------------------------------------------------------------
1,085,500 MCI Communications Corp. 38,806,625
------------------------------------------------------------------------------
978,300 Pacific Telesis Group 39,865,725
------------------------------------------------------------------------------
171,300 SBC Communications, Inc. 9,849,750
------------------------------------------------------------------------------
989,700 Sprint Corp. 45,031,350
------------------------------------------------------------------------------ ----------------
Total 276,493,337
------------------------------------------------------------------------------ ----------------
NATURAL GAS DISTRIBUTION--4.9%
------------------------------------------------------------------------------
1,290,000 MCN Corp. 39,022,500
------------------------------------------------------------------------------
117,200 New Jersey Resources Corp. 3,369,500
------------------------------------------------------------------------------
1,152,200 Pacific Enterprises 35,142,100
------------------------------------------------------------------------------ ----------------
Total 77,534,100
------------------------------------------------------------------------------ ----------------
NON-U.S. UTILITIES--8.4%
------------------------------------------------------------------------------
1,044,000 China Light and Power Co. Ltd. 4,826,529
------------------------------------------------------------------------------
827,200 Empresa Nacional Electricidad S.A., ADR 15,923,600
------------------------------------------------------------------------------
517,400 Iberdrola S.A. 5,648,826
------------------------------------------------------------------------------
540,700 Korea Electric Power Corp., ADR 9,732,600
------------------------------------------------------------------------------
1,053,310 National Power Co. PLC, ADR 33,705,920
------------------------------------------------------------------------------
2,216 Nippon Telegraph & Telephone Corp. 15,812,136
------------------------------------------------------------------------------
6,223,100 STET Societa Finanziaria Telefonica S.P.A. 21,742,497
------------------------------------------------------------------------------
</TABLE>
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- -------------- ------------------------------------------------------------------------------ ----------------
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------------------
NON-U.S. UTILITIES--CONTINUED
------------------------------------------------------------------------------
<C> <S> <C>
256,400 Telecomunicacoes Brasileiras S.A., ADR $ 24,870,800
------------------------------------------------------------------------------ ----------------
Total 132,262,908
------------------------------------------------------------------------------ ----------------
OIL/GAS TRANSMISSION--2.5%
------------------------------------------------------------------------------
401,700 Panenergy Corp. 17,122,462
------------------------------------------------------------------------------
509,550 Williams Cos., Inc. (The) 22,292,813
------------------------------------------------------------------------------ ----------------
Total 39,415,275
------------------------------------------------------------------------------ ----------------
OTHER TELEPHONE/COMMUNICATIONS--0.5%
------------------------------------------------------------------------------
348,000 Frontier Corp. 7,699,500
------------------------------------------------------------------------------ ----------------
WATER SUPPLY--0.3%
------------------------------------------------------------------------------
196,600 American Water Works Co., Inc. 4,595,525
------------------------------------------------------------------------------ ----------------
TOTAL COMMON STOCKS (IDENTIFIED COST $994,836,610) 1,219,526,945
------------------------------------------------------------------------------ ----------------
CONVERTIBLE CORPORATE BONDS--4.5%
- ----------------------------------------------------------------------------------------------
HEALTH CARE--1.6%
------------------------------------------------------------------------------
$ 16,490,000 Alza Corp., Conv. Bond, 5.00%, 5/1/2006 16,366,325
------------------------------------------------------------------------------
7,750,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 8,554,063
------------------------------------------------------------------------------ ----------------
Total 24,920,388
------------------------------------------------------------------------------ ----------------
NON-U.S. UTILITIES--1.3%
------------------------------------------------------------------------------
6,270,000 Korea Electric Power Corp., Conv. Bond, 5.00%, 8/1/2001 6,191,625
------------------------------------------------------------------------------
12,550,000 (a)New World Infrastructure, Conv. Bond, 5.00%, 7/15/2001 15,122,750
------------------------------------------------------------------------------ ----------------
Total 21,314,375
------------------------------------------------------------------------------ ----------------
RETAIL TRADE--0.6%
------------------------------------------------------------------------------
8,450,000 Saks Holdings, Inc., Conv. Bond, 5.50%, 9/15/2006 8,777,438
------------------------------------------------------------------------------ ----------------
TECHNOLOGY--1.0%
------------------------------------------------------------------------------
14,540,000 (a)Solectron Corp., Conv. Bond, 6.00%, 3/1/2006 15,567,251
------------------------------------------------------------------------------ ----------------
TOTAL CONVERTIBLE CORPORATE BONDS (IDENTIFIED COST $65,897,568) 70,579,452
------------------------------------------------------------------------------ ----------------
</TABLE>
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -------------- ------------------------------------------------------------------------------ ----------------
CONVERTIBLE PREFERRED STOCKS--17.4%
- ----------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.1%
------------------------------------------------------------------------------
<C> <S> <C>
929,600 Coeur d'Alene Mines Corp., Conv. Pfd., $1.49 $ 18,011,000
------------------------------------------------------------------------------
390,700 Merrill Lynch & Co., Inc., STRYPES, Series IML, 6.25% 14,993,113
------------------------------------------------------------------------------ ----------------
Total 33,004,113
------------------------------------------------------------------------------ ----------------
CABLE INDUSTRY--0.6%
------------------------------------------------------------------------------
468,600 Merrill Lynch & Co., Inc., STRYPES, Series Cox, 6.00% 9,606,300
------------------------------------------------------------------------------ ----------------
CELLULAR TELEPHONE--1.0%
------------------------------------------------------------------------------
567,000 Airtouch Communications, Inc., DECS, Series B, $1.74 16,655,625
------------------------------------------------------------------------------ ----------------
CONSUMER NON-DURABLES--0.5%
------------------------------------------------------------------------------
161,900 Amcor Ltd., PRIDES, 7.25% 8,580,700
------------------------------------------------------------------------------ ----------------
ENERGY MINERALS--1.1%
------------------------------------------------------------------------------
311,500 (a)Tosco Corp., Conv. Pfd., 5.75% 16,821,000
------------------------------------------------------------------------------ ----------------
FINANCE--3.8%
------------------------------------------------------------------------------
156,400 Merrill Lynch & Co., Inc., STRYPES, Series Sun America, 7.25% 10,166,000
------------------------------------------------------------------------------
413,000 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 28,290,500
------------------------------------------------------------------------------
294,800 Salomon, Inc., DECS, Series FSA, 7.625% 9,544,150
------------------------------------------------------------------------------
289,000 SunAmerica, Inc., PERCS 12,174,125
------------------------------------------------------------------------------ ----------------
Total 60,174,775
------------------------------------------------------------------------------ ----------------
HEALTH CARE--1.1%
------------------------------------------------------------------------------
206,328 Aetna, Inc., Conv. Pfd., $4.76 16,635,195
------------------------------------------------------------------------------ ----------------
OIL/GAS TRANSMISSION--1.8%
------------------------------------------------------------------------------
275,000 Williams Cos., Inc. (The), Conv. Pfd., $3.50 28,338,750
------------------------------------------------------------------------------ ----------------
SERVICES--2.5%
------------------------------------------------------------------------------
504,600 Browning-Ferris Industries, Inc., ACES, $2.58 16,210,275
------------------------------------------------------------------------------
130,000 (a)CalEnergy Co., Inc., Conv. Pfd., 6.25% 6,500,000
------------------------------------------------------------------------------
825,000 Hollinger International Publishing, Inc., Conv. Pfd., $.95 8,559,375
------------------------------------------------------------------------------
88,000 Ikon Office Solutions, Inc., Conv. Pfd., Series BB, $5.04 8,228,000
------------------------------------------------------------------------------ ----------------
Total 39,497,650
------------------------------------------------------------------------------ ----------------
</TABLE>
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- -------------- ------------------------------------------------------------------------------ ----------------
CONVERTIBLE PREFERRED STOCKS--CONTINUED
- ----------------------------------------------------------------------------------------------
TECHNOLOGY--1.8%
------------------------------------------------------------------------------
<C> <S> <C>
342,500 Microsoft Corp., Cumulative Conv. Pfd., Series A, 2.75% $ 28,384,688
------------------------------------------------------------------------------ ----------------
TELECOMMUNICATIONS--1.1%
------------------------------------------------------------------------------
288,400 Salomon, Inc., DECS, Series CSN, $3.48 17,664,500
------------------------------------------------------------------------------ ----------------
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $209,350,446) 275,363,296
------------------------------------------------------------------------------ ----------------
(b) REPURCHASE AGREEMENT--0.8%
- ----------------------------------------------------------------------------------------------
$ 12,240,000 BT Securities Corporation, 5.38%, dated 2/28/1997, due 3/3/1997
(at amortized cost) 12,240,000
------------------------------------------------------------------------------ ----------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,282,324,624)(c) $ 1,577,709,693
------------------------------------------------------------------------------ ----------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At February 28, 1997, these securities
amounted to $54,011,001 which represents 3.4% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $1,282,459,975.
The net unrealized appreciation of investments on a federal tax basis
amounts to $295,249,718 which is comprised of $310,458,751 appreciation and
$15,209,033 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($1,581,729,266) at February 28, 1997.
The following acronyms are used throughout this portfolio:
ACES-- Adjustable Convertible Extendable Securities
ADR-- American Depository Receipt
DECS-- Dividend Enhanced Convertible Stock
PERCS-- Preferred Equity Redemption Cumulative Stock
PLC-- Public Limited Company
PRIDES-- Preferred Redeemable Increased Dividend Equity Securities
REIT-- Real Estate Investment Trust
STRYPES-- Structured Yield Product Exchangeable for Common Stock
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $1,282,324,624, and tax cost
$1,282,459,975) $1,577,709,693
- --------------------------------------------------------------------------------------------------
Cash denominated in foreign currency (identified and tax cost $155,035) 143,092
- --------------------------------------------------------------------------------------------------
Income receivable 6,106,931
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 22,780,550
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 3,451,268
- -------------------------------------------------------------------------------------------------- -------------
Total assets 1,610,191,534
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------
Payable for investments purchased $21,095,255
- --------------------------------------------------------------------------------------
Payable for shares redeemed 5,558,330
- --------------------------------------------------------------------------------------
Income distribution payable 937,275
- --------------------------------------------------------------------------------------
Payable to bank 43,127
- --------------------------------------------------------------------------------------
Payable for taxes withheld 26,497
- --------------------------------------------------------------------------------------
Accrued expenses 801,784
- -------------------------------------------------------------------------------------- ----------
Total liabilities 28,462,268
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 119,177,926 shares outstanding $1,581,729,266
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $1,250,026,832
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency**** 295,243,893
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 33,194,878
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 3,263,663
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $1,581,729,266
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
CLASS A SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($759,732,483 / 57,239,756 shares outstanding) $13.27
- -------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/94.50 of $13.27)* $14.04
- -------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share $13.27
- -------------------------------------------------------------------------------------------------- -------------
CLASS B SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($101,618,747 / 7,652,928 shares outstanding) $13.28
- -------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $13.28
- -------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (94.50/100 of $13.28)** $12.55
- -------------------------------------------------------------------------------------------------- -------------
CLASS C SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($58,195,788 / 4,383,183 shares outstanding) $13.28
- -------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $13.28
- -------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (99.00/100 of $13.28)** $13.15
- -------------------------------------------------------------------------------------------------- -------------
CLASS F SHARES:
- --------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($662,182,248 / 49,902,059 shares outstanding) $13.27
- -------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/99.00 of $13.27)* $13.40
- -------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (99.00/100 of $13.27)*** $13.14
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
*** See "Investing in Class F Shares" in the Prospectus.
**** Includes $93,019,447 of unrealized appreciation at June 1, 1996 related to
the Acquired Fund.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended February 28, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,829,410) $62,836,807
- ---------------------------------------------------------------------------------------------------
Interest 5,472,057
- --------------------------------------------------------------------------------------------------- -----------
Total income 68,308,864
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee $10,761,268
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 1,084,280
- ---------------------------------------------------------------------------------------
Custodian fees 177,188
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,818,767
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 11,079
- ---------------------------------------------------------------------------------------
Auditing fees 22,983
- ---------------------------------------------------------------------------------------
Legal fees 9,514
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 179,574
- ---------------------------------------------------------------------------------------
Distribution services fee--Class B Shares 692,043
- ---------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 466,319
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 1,909,404
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 230,681
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 155,440
- ---------------------------------------------------------------------------------------
Shareholder services fee--Class F Shares 1,291,565
- ---------------------------------------------------------------------------------------
Share registration costs 248,048
- ---------------------------------------------------------------------------------------
Printing and postage 214,031
- ---------------------------------------------------------------------------------------
Insurance premiums 16,476
- ---------------------------------------------------------------------------------------
Taxes 94,229
- ---------------------------------------------------------------------------------------
Miscellaneous 31,054
- --------------------------------------------------------------------------------------- ----------
Total expenses 19,413,943
- ---------------------------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $(1,691,837)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (45,826)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (564)
- ---------------------------------------------------------------------------
Waiver of shareholder services fee--Class F Shares (154,988)
- --------------------------------------------------------------------------- ----------
Total waivers (1,893,215)
- --------------------------------------------------------------------------------------- ----------
Net expenses 17,520,728
- --------------------------------------------------------------------------------------------------- -----------
Net investment income 50,788,136
- --------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 78,584,029
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 76,927,979
- --------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments and foreign currency 155,512,008
- --------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $206,300,144
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 50,788,136 $ 35,422,847
- ----------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions
($77,187,780 and $35,892,535, respectively, as computed for federal tax
purposes) 78,584,029 47,885,694
- ----------------------------------------------------------------------------
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 76,927,979 88,054,561
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 206,300,144 171,363,102
- ---------------------------------------------------------------------------- ----------------- -----------------
NET EQUALIZATION CREDITS (DEBITS)-- (349,136) (318,431)
- ---------------------------------------------------------------------------- ----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------------------------------
Distributions from net investment income
- ----------------------------------------------------------------------------
Class A Shares (30,916,720) (31,171,022)
- ----------------------------------------------------------------------------
Class B Shares (2,917,172) (1,826,388)
- ----------------------------------------------------------------------------
Class C Shares (1,924,467) (2,080,469)
- ----------------------------------------------------------------------------
Class F Shares (19,257,898) --
- ----------------------------------------------------------------------------
Distributions in excess of net investment income
- ----------------------------------------------------------------------------
Class A Shares -- (381,611)
- ----------------------------------------------------------------------------
Class B Shares -- --
- ----------------------------------------------------------------------------
Class C Shares -- (30,642)
- ----------------------------------------------------------------------------
Class F Shares -- --
- ----------------------------------------------------------------------------
Distributions from net realized gains on investments
and foreign currency transactions
- ----------------------------------------------------------------------------
Class A Shares (43,588,717) --
- ----------------------------------------------------------------------------
Class B Shares (5,277,792) --
- ----------------------------------------------------------------------------
Class C Shares (3,542,933) --
- ----------------------------------------------------------------------------
Class F Shares (18,303,689) --
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from distributions to shareholders (125,729,388) (35,490,132)
- ---------------------------------------------------------------------------- ----------------- -----------------
SHARE TRANSACTIONS--
- ----------------------------------------------------------------------------
Proceeds from sale of shares 115,531,852 149,459,995
- ----------------------------------------------------------------------------
Proceeds from shares issued in connection with the acquisition 730,686,278(a) --
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 101,834,448 26,442,124
- ----------------------------------------------------------------------------
Cost of shares redeemed (415,745,469) (162,110,279)
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from share transactions 532,307,109 13,791,840
- ---------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 612,528,729 149,346,379
- ----------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------
Beginning of period 969,200,537 819,854,158
- ---------------------------------------------------------------------------- ----------------- -----------------
End of period $ 1,581,729,266 $ 969,200,537
- ---------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(a) Includes $93,019,447 of unrealized appreciation.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Financial Highlights--Class A Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.79 $ 10.98 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82 $ 9.15
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.52 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 1.22 1.82 (0.69) -- 1.44 0.92 0.43 0.79
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations 1.74 2.30 (0.14) 0.60 2.02 1.60 1.14 1.50
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------------------
Distributions from net investment
income (0.52) (0.48) (0.66) (0.61) (0.66) (0.64) (0.70) (0.76)
- -------------------------------------
Distributions from net realized gain
on investments and foreign currency
transactions (0.74) -- (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 (1.26) (0.49) (1.12) (0.65) (0.76) (0.70) (0.83) (0.83)
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 13.27 $ 12.79 $ 10.98 $ 12.24 $ 12.29 $ 11.03 $ 10.13 $ 9.82
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 14.34% 21.47% (0.98%) 4.93% 19.26% 16.48% 12.41% 16.72%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 1.15% 1.14% 1.10% 1.12% 1.04% 1.05% 1.02% 1.02%
- -------------------------------------
Net investment income 3.52% 4.09% 4.95% 4.81% 5.98% 6.31% 7.41% 7.17%
- -------------------------------------
Expense waiver (d) 0.12% 0.15% 0.21% 0.17% 0.01% 0.19% 0.51% 0.74%
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000
omitted) $759,732 $816,687 $742,274 $877,513 $739,511 $375,656 $125,599 $48,050
- -------------------------------------
Average commission rate paid (e) $0.0003 -- -- -- -- -- -- --
- -------------------------------------
Portfolio turnover 44% 76% 55% 24% 18% 35% 45% 37%
- -------------------------------------
<CAPTION>
1989 1988(a)
<S> <C> <C>
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 investments 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 (d) 0.40% 0.38%*
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000
omitted) $410,575 $52,947
- -------------------------------------
Average commission rate paid (e) -- --
- -------------------------------------
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.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Financial Highlights--Class B Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 OR 29,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.77 $ 10.98 $ 10.92
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income 0.44 0.43 0.22
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 1.21 1.77 (0.04)
- -------------------------------------------------------------------------------- --------- ----------- -----------
Total from investment operations 1.65 2.20 0.18
- -------------------------------------------------------------------------------- --------- ----------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions from net investment income (0.40) (0.41) (0.08)
- --------------------------------------------------------------------------------
Distributions from net realized gain on investments and
foreign currency transactions (0.74) -- --
- --------------------------------------------------------------------------------
Tax return of capital distribution -- -- (0.04)
- -------------------------------------------------------------------------------- --------- ----------- -----------
Total distributions (1.14) (0.41) (0.12)
- -------------------------------------------------------------------------------- --------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.28 $ 12.77 $ 10.98
- -------------------------------------------------------------------------------- --------- ----------- -----------
TOTAL RETURN (B) 13.60% 20.45% 2.16%
- --------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Expenses 1.90% 1.90% 1.87%*
- --------------------------------------------------------------------------------
Net investment income 2.81% 3.19% 4.53%*
- --------------------------------------------------------------------------------
Expense waiver (c) 0.12% 0.14% 0.25%*
- --------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $101,619 $ 85,650 $ 18,780
- --------------------------------------------------------------------------------
Average commission rate paid (d) $0.0003 -- --
- --------------------------------------------------------------------------------
Portfolio turnover 44% 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.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Financial Highlights--Class C Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.77 $ 10.98 $ 12.23 $ 12.27
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.42 0.39 0.42 0.48
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 1.23 1.80 (0.64) (0.07)
- ------------------------------------------------------------------ --------- --------- --------- -----------
Total from investment operations 1.65 2.19 (0.22) 0.41
- ------------------------------------------------------------------ --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.40) (0.39) (0.60) (0.41)
- ------------------------------------------------------------------
Distributions from net realized gain on investments and
foreign currency transactions (0.74) -- (0.13) (0.04)
- ------------------------------------------------------------------
Distributions in excess of net investment income (b) -- (0.01) -- --
- ------------------------------------------------------------------
Tax return of capital distribution -- -- (0.30) --
- ------------------------------------------------------------------ --------- --------- --------- -----------
Total distributions (1.14) (0.40) (1.03) (0.45)
- ------------------------------------------------------------------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.28 $ 12.77 $ 10.98 $ 12.23
- ------------------------------------------------------------------ --------- --------- --------- -----------
TOTAL RETURN (C) 13.58% 20.43% (1.66%) 3.28%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 1.90% 1.87% 1.86% 1.87%*
- ------------------------------------------------------------------
Net investment income 2.77% 3.35% 4.19% 4.02%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.12% 0.17% 0.21% 0.17%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $58,196 $66,864 $58,800 $64,409
- ------------------------------------------------------------------
Average commission rate paid (e) $0.0003 -- -- --
- ------------------------------------------------------------------
Portfolio turnover 44% 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.
(e) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Financial Highlights--Class F Shares
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.37
- ------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income 0.42
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 1.20
- ------------------------------------------------------------------------------------------------ -------
Total from investment operations 1.62
- ------------------------------------------------------------------------------------------------ -------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------------------------------
Distributions from net investment income (0.36)
- ------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments and foreign currency transactions (0.36)
- ------------------------------------------------------------------------------------------------ -------
Total distributions (0.72)
- ------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 13.27
- ------------------------------------------------------------------------------------------------ -------
TOTAL RETURN (B) 13.39%
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------------------
Expenses 1.12%*
- ------------------------------------------------------------------------------------------------
Net investment income 3.79%*
- ------------------------------------------------------------------------------------------------
Expense waiver (c) 0.15%*
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $662,182
- ------------------------------------------------------------------------------------------------
Average commission rate paid (d) $0.0003
- ------------------------------------------------------------------------------------------------
Portfolio turnover 44%
- ------------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 1, 1996 (date of initial public
investment) to February 28, 1997.
(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.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
Federated Utility Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
February 28, 1997
(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 Fund offers four classes of shares: Class A
Shares, Class B Shares, Class C Shares and Class F Shares. The primary
investment objective of the Fund is current income and long-term growth of
income.
On June 1, 1996, the Fund acquired all the net assets of Fortress Utility Fund,
Inc. ("Acquired Fund") pursuant to a plan of reorganization approved by the
Acquired Fund's shareholders. The acquisition was accomplished by a tax-free
exchange of 59,078,573 shares of the Fund (valued at $730,686,278) for the
52,727,413 shares of the Acquired Fund outstanding on June 1, 1996. The Acquired
Fund's net assets of $730,686,278, which consisted of $637,666,831 of Paid in
Capital and $93,019,447 of Unrealized Appreciation, at that date were combined
with those of the Fund. The aggregate net assets of the Fund and the Acquired
Fund immediately before the acquisition were $925,114,464 and $730,686,278,
respectively.
(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, other fixed income
securities, unlisted securities and private placement securities are
generally valued at the mean of the latest bid and asked price as furnished
by an independent pricing service. Listed equity securities are valued at
the last sale price reported on a national securities exchange. 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. 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.
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
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
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 NET REALIZED UNDISTRIBUTED NET
PAID IN CAPITAL GAIN INVESTMENT INCOME
<S> <C> <C>
($5,494,229) ($ 2,400,956) $ 7,895,185
</TABLE>
Net investment income, net realized gains, 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. At February 28, 1997, the Fund,
for federal tax purposes, had a capital loss carryforward of $619,107,
which will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the Code.
Such capital loss carryforward will expire in 1998.
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.
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
FOREIGN EXCHANGE CONTRACTS--The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the Fund's
securities against currency fluctuations. 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. At February 28, 1997, the Fund had no
outstanding foreign currency commitments.
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 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.
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
Additional information on each restricted security held at February 28,
1997 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
CalEnergy Co. 2/20/97 $ 6,500,000
New World Infrastructure 5/15/96 12,550,000
Solectron Corp. 2/15/96-3/15/96 14,458,814
Tosco Corp. 10/20/96-12/10/96 15,640,161
</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 28, 1997, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 250,000,000
Class B Shares 250,000,000
Class C Shares 250,000,000
Class F Shares 250,000,000
-----------------
Total 1,000,000,000
-----------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Shares sold 3,938,897 $ 50,196,432 5,648,312 $ 67,001,561
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 4,955,544 62,992,760 2,093,790 23,963,889
- -------------------------------------------------
Shares redeemed (15,487,709) (196,650,542) (11,487,559) (134,618,367)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class A Share
transactions (6,593,268) $ (83,461,350) (3,745,457) $ (43,652,917)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 2,075,501 $ 26,214,023 5,569,457 $ 65,886,136
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 539,077 6,855,719 97,013 1,137,632
- -------------------------------------------------
Shares redeemed (1,666,470) (21,106,138) (672,672) (8,251,465)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class B Share
transactions 948,108 $ 11,963,604 4,993,798 $ 58,772,303
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 530,050 $ 6,672,539 1,400,958 $ 16,572,299
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 358,805 4,561,299 115,628 1,340,603
- -------------------------------------------------
Shares redeemed (1,739,743) (22,066,913) (1,640,135) (19,240,448)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class C Share
transactions (850,888) $ (10,833,075) (123,549) $ (1,327,546)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
FEBRUARY 28, 1997(A) FEBRUARY 29, 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 2,557,611 $ 32,448,858 -- --
- -------------------------------------------------
Shares issued in connection with the acquisition 59,078,573 730,686,278 -- --
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 2,150,921 27,424,670 -- --
- -------------------------------------------------
Shares redeemed (13,885,046) (175,921,876) -- --
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from Class F Share
transactions 49,902,059 $ 614,637,930 -- --
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from
Share transactions 43,406,011 $ 532,307,109 1,124,792 $ 13,791,840
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
(a) For the period from June 1, 1996 (date of initial public investment) to
February 28, 1997.
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
(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. The Adviser
can modify or terminate this voluntary waiver 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. ("FSC"), 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 FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
DAILY
SHARE CLASS NET ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily 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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ 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.
Federated Utility Fund, Inc.
- --------------------------------------------------------------------------------
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 28, 1997, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
PURCHASES $ 575,759,397
- ------------------------------------------------------------------------------------------------ ----------------
SALES $ 450,195,864
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Directors and Shareholders of
FEDERATED 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 28,
1997, 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 audit 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 28, 1997, 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 28, 1997, 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 17, 1997
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
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President, Treasurer, and Secretary
Wesley W. Posvar S. Elliott Cohan
Marjorie P. Smuts 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
Cusip 314286402
G01049-01 (4/97) [LOGO OF RECYCLED PAPER]
FEDERATED UTILITY FUND, INC. APPENDIX
1. 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 2/28/97. The `y'' axis is measured in increments of $3,000
ranging from $0 to $27,000 and indicates that the ending value of
hypothetical initial investment of $9,000 in the Class A Shares of the
Fund, assuming the reinvestment of capital gains and dividends,would have
grown to $25,005 on 2/28/97.
2. 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 2/28/97. The `y'' axis is measured in increments of $2,000
ranging from $0 to $16,000 and indicates that the ending value of
hypothetical yearly investments of $1,000 in the Class A Shares of the
Fund, assuming the reinvestment of capital gains and dividends,would have
grown to $15,604 on 2/28/97.
3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Class A
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
Standard & Poor's 500 Index (the `S&P 500'') is represented by a broken
line, the Standard & Poor's Utility Index (S&PU) is represented by a
represented by a dotted line and the Dow Jones Utility Average ("DJUA") is
represented by a broken dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the the fund and the S&P 500, S&PU and DJUA. The `x'' axis
reflects computation periods from 5/27/88 to 2/28/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund as compared to the S&P
500, S&PU and DJUA; the ending values were $28,090, $39,085, $30,679 and
$22,806, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares' Average Annual Total
Return for the one-year, five-year, and start of performance (5/27/88)
periods ended 2/28/97, which were 8.08%, 10.22%, and 12.37%, respectively.
4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Class B
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
Standard & Poor's 500 Index (the `S&P 500'') is represented by a broken
line, the Standard & Poor's Utility Index (S&PU) is represented by a
represented by a dotted line and the Dow Jones Utility Average ("DJUA") is
represented by a broken dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the the fund and the S&P 500, S&PU and DJUA. The `x'' axis
reflects computation periods from 9/28/94 to 2/28/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund as compared to the S&P
500, S&PU and DJUA; the ending values were $13,522, $18,112, $14,451 and
$14,565, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class B Shares' Average Annual Total
Return for the one-year, and start of performance (9/28/94) periods ended
2/28/97, which were 7.62% and 13.27%, respectively.
5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Class C
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
Standard & Poor's 500 Index (the `S&P 500'') is represented by a broken
line, the Standard & Poor's Utility Index (S&PU) is represented by a
represented by a dotted line and the Dow Jones Utility Average ("DJUA") is
represented by a broken dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the the fund and the S&P 500, S&PU and DJUA. The `x'' axis
reflects computation periods from 4/27/93 to 2/28/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund as compared to the S&P
500, S&PU and DJUA; the ending values were $13,893, $19,811, $14,168 and
$11,952, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class C Shares' Average Annual Total
Return for the one-year and start of performance (4/27/93) periods ended
2/28/97, which were 12.47% and 8.93%, respectively.
6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Class F
Shares of Federated Utility Fund, Inc. are represented by a solid line. The
Standard & Poor's 500 Index (the `S&P 500'') is represented by a broken
line, the Standard & Poor's Utility Index (S&PU) is represented by a
represented by a dotted line and the Dow Jones Utility Average ("DJUA") is
represented by a broken dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the the fund and the S&P 500, S&PU and DJUA. The `x'' axis
reflects computation periods from 6/1/96 to 2/28/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund as compared to the S&P
500, S&PU and DJUA; the ending values were $11,121, $12,004, $10,682 and
$11,269, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class F Shares' Cumulative Total Return
for the start of performance (6/1/96) period ended 2/28/97, which was
11.28%.
