Federated Utility Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
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Supplement to the Prospectuses dated April 30, 1997
1. Please insert the following immediately following the section entitled
"Repurchase Agreements" in your prospectus:
"Convertible Securities
Convertible securities include a spectrum of securities which can be
exchanged for or converted into common stock. Convertible securities
may include, but are not limited to: convertible bonds or debentures;
convertible preferred stock; units consisting of usable bonds and
warrants; or securities which cap or otherwise limit returns to the
convertible security holder, such as DECS (Dividend Enhanced
Convertible Stock, or Debt Exchangeable for Common Stock when issued as
a debt security), LYONS (Liquid Yield Option Notes, which are corporate
bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS (Preferred Equity Redemption Cumulative
Stock (an equity issue that pays a high cash dividend, has a cap price
and mandatory conversion to common stock at maturity), and PRIDES
(Preferred Redeemable Increased Dividend Securities (which are
essentially the same as DECS; the difference is little more than who
initially underwrites the issue).
Convertible securities are often rated below investment grade or not
rated because they fall below debt obligations and just above common
equity in order of preference or priority on the issuer's balance
sheet. Hence, an issuer with investment grade senior debt may issue
convertible securities with ratings less than investment grade or not
rated. Convertible securities rated below investment grade may be
subject to some of the same risks as those inherent in junk bonds. The
Fund does not limit convertible securities by rating, and there is no
minimal acceptance rating for a convertible security to be purchased or
held in the Fund. Therefore, the Fund invests in convertible securities
irrespective of their ratings. This could result in the Fund purchasing
and holding, without limit, convertible securities rated below
investment grade by an NRSRO or in the Fund holding such securities
where they have acquired a rating below investment grade after the Fund
has purchased it."
2. Please replace the section entitled "Securities of Foreign Issuers" in
your prospectus with the following:
"Securities of Foreign Issuers.
Investing in non-U.S. securities carries substantial risks in addition
to those associated with domestic investments. In an attempt to reduce
some of these risks, the Fund diversifies its investments broadly among
foreign countries, including both developed and developing countries.
<PAGE>
The Fund will take advantage of the unusual opportunities for higher
returns available from investing in developing countries and may invest
in the utility and other securities of such countries. These
investments carry considerably more volatility and risk because they
are associated with less mature economies and less stable political
systems. (See "Risk Considerations in Developing Countries.")"
3. On May 15, 1997, the Board of Directors approved a sub-advisory
agreement between Passport Research Ltd. and Federated Global Research
Corp. on behalf of the Fund, effective June 1, 1997. Accordingly,
please delete the section entitled "Adviser's Background" from your
prospectus and replace it with the following:
"Adviser's Background. Passport Research Ltd. is a Pennsylvania limited
partnership organized in 1981. Federated Advisers is the general partner
of the Adviser and has a 50.5% interest in the Adviser. Federated
Advisers is a subsidiary of Federated Investors. Edward D. Jones & Co.
L.P. is the limited partner of the Adviser and has a 49.5% interest
in the Adviser. Passport Research, Ltd. has also acted as investment
adviser for Edward D. Jones & Co., Daily Passport Cash Trust since
1982. Employees of the Adviser are also employees of other advisers
which are affiliates of Federated Investors.
Sub-Adviser. Under the terms of the Sub-Advisory Agreement between the
Adviser and Federated Global Research Corp. (the "Sub-Adviser"), the Sub-Adviser
will provide the Adviser such investment advice, statistical and other factual
information as may, from time to time, be reasonably requested by the Adviser.
Sub-Advisory Fees. For its services under the Sub-Advisory Agreement,
the Sub-Adviser receives an allocable portion of the Fund's advisory
fee. Such allocation is based on the amount of foreign securities which
the Sub-Adviser manages for the Fund. This fee is paid by the Adviser
out of its resources and is not an incremental Fund expense.
Sub-Adviser's Background. Federated Global Research Corp., incorporated
in Delaware on May 12, 1995, is a registered investment adviser under
the Investment Advisers Act of 1940.
The Sub-Adviser is a subsidiary of Federated Investors. All of the
Class A (voting) Shares of Federated Investors are owned by a trust,
the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Passport Research, Ltd., Federated Global Research Corp. and other
subsidiaries of Federated Investors serve as investment advisers to a
number of investment companies and private accounts. Certain other
subsidiaries also provide administrative services to a number of
investment companies. With over $110 billion invested across more than
300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest
mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in
and through 4,500 financial institutions nationwide.
<PAGE>
Linda A Duessel has been a portfolio manager for the Fund since April 1995.
Ms. Duessel joined Federated Investors in 1991 and has been a Vice
President of the Adviser since 1995. Ms. Duessel was an Assistant Vice
President of the Adviser from 1991 until 1995. Ms. Duessel is a Chartered
Financial Analyst and received her M.S. in Industrial Administration from
Carnegie Mellon University.
Steven J. Lehman will be named a portfolio manager of the Fund effective
July 1997. Mr. Lehman joined the Adviser in May 1997 as a Vice President.
From 1985 to May 1997, Mr. Lehman served as a Portfolio Manager,
then Vice President/Senior Portfolio Manager, at First Chicago NBD
Investment Management Company. Mr. Lehman is a Chartered Financial
Analyst; he received his M.A. from the University of Chicago.
Michael J. Donnelly has been a portfolio manager for the international
sector of the Fund since June 1997. Mr. Donnelly joined Federated
Investors in 1993 as an Investment Analyst and has been a Vice
President of the Fund's Adviser since January 1997. Mr. Donnelly was an
Assistant Vice President of the Adviser from 1995 to 1996, and served as
Assistant Manager at Korea First Bank from 1991 to 1993. Mr. Donnelly
received his Masters Degree in Management with a concentration in
international business and finance from Northwestern University.
The Trust, the Adviser, and the Sub-Adviser have adopted strict codes
of ethics governing the conduct of all employees who manage the Fund
and its portfolio securities. These codes recognize that such persons
owe a fiduciary duty to the Fund's shareholders and must place the
interests of shareholders ahead of the employees' own interest. Among
other things, the codes: require preclearance and periodic reporting of
personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or
sale by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than
sixty days. Violations of these codes are subject to review by the
Trustees, and could result in severe penalties."
June 19, 1997
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Federated Utility Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Class F Shares
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Supplement to the Statement of Additional Information dated April 30, 1997
1. Please replace the section entitled "Convertible Securities" with the
following:
"Convertible Securities
DECS, or similar instruments marketed under different names, offer a
substantial dividend advantage with the possibility of unlimited upside
potential if the price of the underlying common stock exceeds a certain
level. DECS convert to common stock at maturity. The amount received is
dependent on the price of the common stock at the time of maturity.
DECS contain two call options at different strike prices. DECS
participate with the common stock up to the first call price. They are
effectively capped at that point unless the common stock rises above a
second price point, at which time they participate with unlimited
upside potential.
PERCS, or similar instruments marketed under different names, offer a
substantial dividend advantage, but capital appreciation potential is
limited to a predetermined level. PERCS are less risky and less
volatile than the underlying common stock because their superior income
mitigates declines when the common stock falls, while the cap price
limits gains when the common stock rises."
2. Please add the following immediately following the section entitled
"Advisory Fees":
"Sub-Adviser to the Fund
The Fund's sub-adviser is Federated Global Research Corp.
(the "Sub-Adviser").
Sub-Advisory Fees
For its sub-advisory services, the Sub-Adviser receives an
allocable portion of the Fund's advisory fee as described in the
prospectus."
June 19, 1997
