FEDERATED UTILITY FUND INC, 485BPOS, 1997-04-25

FEDERATED UTILITY FUND INC
485BPOS, 1997-04-25

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1933 Act File No. 33-13388
1940 Act File No. 811-5114

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
--

Pre-Effective Amendment No. ..........
- ---

Post-Effective Amendment No. 19 .......... X
--

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 22 ......................... X

FEDERATED UTILITY FUND, INC.

(Exact Name of Registrant as Specified in Charter)

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

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

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

It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
- - -
X on April 29, 1997 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
-
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
- - -
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on or about April 15, 1997; or
- -
intends to file the Notice required by that Rule on or about; or
-
during the most recent fiscal year did not sell any securities
-
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro Morin & Oshinsky, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED UTILITY FUND,
INC., consisting of four classes of shares: (1) Class A Shares; (2) Class B
Shares; (3) Class C Shares; and (4) Class F Shares is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
Rule 404(c) Cross Reference)

Item 1. Cover Page...............(1-4) Cover Page.
Item 2. Synopsis.................(1-4) General Information; (1-4) Summary
of Fund Expenses.
Item 3. Condensed Financial
Information............(1-4) Financial Highlights
Item 4. General Description of
Registrant.............(1-4) Performance Information; (1-4)
General Information; (1-4) Investment
Information; (1-4) Investment Objective;
(1-4) Investment Policies; (1-4)
Investment Risks; (1-4) Investment
Limitations; (1-4) Performance
Information.
Item 5. Management of the Fund...(1-4) Fund Information; (1-4) Management
of the Fund; (4) Distribution of Class F
Shares; (1-4) Administration of the
Fund;
Item 6. Capital Stock and Other
Securities.............(1-4) Shareholder Information; (1-4)
Voting Rights; (1-4) Tax Information;
(1-4) Federal Income Tax; (1-4)
Pennsylvania Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered................(1-4) Net Asset Value; (1-3) Investing
in Shares; (4) Investing in Class F
Shares; (1-4) Exchange Privileges.
Item 8. Redemption or Repurchase.(1-3) Redeeming Shares; (4) Redeeming
Class F Shares; (1-4) Through a
Financial Institution; (1-4) Redeeming
Shares By Telephone; (1-4) Redeeming
Shares By Mail; (1-4) Contingent
Deferred Sales Charge; (1-3) Elimination
of the Contingent Deferred Sales Charge;
(1-3) Systematic Withdrawal Program; (1-
4) Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.

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

Item 10. Cover Page...............(1-4) Cover Page.
Item 11. Table of Contents........(1-4) Table of Contents.
Item 12. General Information and
History................(1-4) General Information About the
Fund.
Item 13. Investment Objectives and
Policies...............(1-4) Investment Objectives and
Policies; (1-4) Investment Limitations.
Item 14. Management of the Fund...(1-4) Federated Utility Fund, Inc.
Management; (1-4) Directors'
Compensation.
Item 15. Control Persons and Principal
Holders of Securities..(1-4) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-4) Investment Advisory Services; (1-
4) Other Services.
Item 17. Brokerage Allocation.....(1-4) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities.............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered..........(1-4) Purchasing Shares; (1-4)
Determining Net Asset Value; (1-4)
Redeeming Shares; (1-4) Elimination of
the Contingent Deferred Sales Charge.
Item 20. Tax Status...............(1-4) Tax Status.
Item 21. Underwriters.............(1-4) Distribution Plan and Shareholder
Services Agreement.
Item 22. Calculation of Performance
Data...................(1-4) Total Return; (1-4) Yield; (1-4)
Performance Comparisons.
Item 23. Financial Statements.....(1-4) Incorporated by reference to the
Annual Report for the Trust filed April
24, 1997 for the fiscal year ended
February 28, 1997. (File Nos. 33-13388
and 811-5114)

FEDERATED UTILITY FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
PROSPECTUS

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

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

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

This prospectus contains the information you should read and know before you
invest in Class A Shares, Class B Shares, and Class C Shares of the Fund. Keep
this prospectus for future reference.

The Fund has also filed a Statement of Additional Information for Class A
Shares, Class B Shares, Class C Shares and Class F Shares dated April 30, 1997,
with the Securities and Exchange Commission ("SEC"). The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information, or a paper copy of this prospectus, if you have received it
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact your financial
institution. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

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

Prospectus dated April 30, 1997

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

TABLE OF CONTENTS

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

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

General Information............................................................7

Investment Information.........................................................8

Investment Objectives........................................................8

Investment Policies..........................................................8

Investment Risks............................................................10

Investment Limitations......................................................13

Net Asset Value...............................................................14

Investing in the Fund.........................................................15

How to Purchase Shares........................................................16

Investing in Class A Shares...................................................16

Reducing or Eliminating the

Sales Charge.............................................................17

Investing in Class B Shares...................................................18

Investing in Class C Shares...................................................19
Special Purchase Features...................................................20

Exchange Privilege............................................................21

How to Redeem Shares..........................................................23
Special Redemption Features.................................................24
Contingent Deferred Sales Charge............................................24
Elimination of Contingent Deferred
Sales Charge.............................................................25

Account and Share Information.................................................27

Fund Information..............................................................28
Management of the Fund......................................................28
Distribution of Shares......................................................29
Administration of the Fund..................................................30
Brokerage Transactions......................................................30

Shareholder Information.......................................................31
Voting Rights...............................................................31

Tax Information...............................................................32
Federal Income Tax..........................................................32
State and Local Taxes.......................................................32

Performance Information.......................................................32

Other Classes of Shares.......................................................33

Addresses.....................................................................34

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

SUMMARY OF FUND EXPENSES
FEDERATED UTILITY FUND, INC.
CLASS A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. 5.50%
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) (1)...................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.63%
12b-1 Fee...................................................................................................... None
Total Other Expenses........................................................................................... 0.52%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (3).......................................................................... 1.15%
</TABLE>

(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased and redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions
made within one year of purchase.

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

(3) The total operating expenses would have been 1.27% absent the voluntary
waiver of a portion of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class A Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Investing in Class A Shares" and "Fund
Information." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return, (2) redemption at the end of each time period, and (3)
payment of the maximum sales charge. Expenses would be the same assuming
no redemption............................................................. $66 $89 $114 $186
</TABLE>

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

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

SUMMARY OF FUND EXPENSES
FEDERATED UTILITY FUND, INC.
CLASS B SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) (1)...................................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.63%
12b-1 Fee...................................................................................................... 0.75%
Total Other Expenses........................................................................................... 0.52%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (3)(4)....................................................................... 1.90%
</TABLE>

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

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

(4) The total operating expenses would have been 2.02% absent the voluntary
waiver of a portion of the management fee.

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

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period........ $76 $104 $126 $203
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $19 $60 $103 $203
</TABLE>

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

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

SUMMARY OF FUND EXPENSES
FEDERATED UTILITY FUND, INC.
CLASS C SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price).................................. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) (1)...................................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................. None
Exchange Fee................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2).............................................................................. 0.63%
12b-1 Fee...................................................................................................... 0.75%
Total Other Expenses........................................................................................... 0.52%
Shareholder Services Fee........................................................................ 0.25%
Total Operating Expenses (3).......................................................................... 1.90%
</TABLE>

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

(3) The total operating expenses would have been 2.02% absent the voluntary
waiver of a portion of the management fee.

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

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period........ $30 $60 $103 $222
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $19 $60 $103 $222
</TABLE>

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

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

-------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
FEDERATED UTILITY FUND, INC.
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

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 $815,687 $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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1997, which can be obtained free of charge.

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

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

- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated April 17, 1997, on the Fund's financial
statements for the year ended February 28, 1997, and on the following table for
the period presented, is included in the Annual Report, which is incorporated by
reference herein. This table should be read in conjunction with the Fund's
financial statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 OR 29,
<S> <C> <C> <C>
1997 1996 1995(A)
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.

(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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1997, which can be obtained free of charge.

- -------------------------------------------------------
-------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
FEDERATED UTILITY FUND, INC.
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated April 17, 1997, on the Fund's financial
statements for the year ended February 28, 1997, and on the following table for
the periods presented, is included in the Annual Report, which is incorporated
by reference herein. This table should be read in conjunction with the Fund's
financial statements and notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
<S> <C> <C> <C> <C>
1997 1996 1995 1994(A)
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 (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.

(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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1997, which can be obtained free of charge.

- -------------------------------------------------------
-------------------------------------------------------
GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. From the date of the Fund's initial public offering in 1987 until May 27,
1988, the Fund was operated as a closed-end investment company. On May 16, 1988,
the shareholders of the Fund approved the conversion of the Fund from a
closed-end investment company to an open-end investment company. Shareholders of
the Fund, at a meeting held January 18, 1990, approved the Fund's name change
from Progressive Income Equity Fund, Inc. to Liberty Utility Fund, Inc. At a
meeting of the Board of Directors held on February 26, 1996, the Directors
approved an amendment to the Articles of Incorporation to change the name of
Liberty Utility Fund, Inc. to Federated Utility Fund, Inc. The Articles of
Incorporation permit the Fund to offer separate series of shares representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to the Fund, as of the date of
this prospectus, the Board of Directors has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares, and Class F Shares
(individually and collectively as the context requires, "Shares"). This
prospectus relates only to the Class A Shares, Class B Shares, and Class C
Shares of the Fund.

Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. The minimum
initial investment for Class A Shares is $500. The minimum initial investment
for Class B Shares and Class C Shares is $1500. However, the minimum initial
investment for a retirement account in any class is $50. Subsequent investments
in any class must be in amounts of at least $100, except for retirement plans
which must be in amounts of at least $50.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

- -------------------------------------------------------
INVESTMENT INFORMATION
INVESTMENT OBJECTIVES

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

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

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

Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or (ii) determined by the adviser to be
of investment grade and not rated by either of the aforementioned rating
services, or (iii) the subordinated debt of issuers whose senior debt
obligations are deemed to be investment grade by either of the aforementioned
rating services. These subordinated debt securities may be unrated or rated
below investment grade by Moody's or S&P. Securities rated in the lowest
category of investment grade have speculative characteristics. Changes in
economic or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. The prices of
fixed income securities fluctuate inversely to the direction of interest rates.

For temporary or defensive purposes, the Fund may be primarily invested in
short-term money market instruments including certificates of deposit,
obligations issued or guaranteed by the United States government or its agencies
or instrumentalities, commercial paper rated not lower than A-1 by S&P or
Prime-1 by Moody's or repurchase agreements. The Fund may invest up to 100% of
the value of its total assets as described above.

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

Downgraded securities will be evaluated on a case by case basis by the adviser.
The adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold. The Directors have
applied this limitation to the Fund's investments in debt convertible
securities.

REPURCHASE AGREEMENTS

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

LENDING OF PORTFOLIO SECURITIES

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

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities and, as a matter of fundamental
policy which may not be changed without shareholder approval, will limit such
investment to no more than 10% of its total assets. This restriction does not
apply to commercial paper issued under Section 4(2) of the Securities Act of
1933. Restricted securities are any securities in which the Fund may otherwise
invest pursuant to its investment objectives and policies but which are subject
to restriction on resale under federal securities law.

The Fund may invest in illiquid securities and, as a matter of fundamental
policy which may not be changed without shareholder approval, will limit such
investment to no more than 10% of its total assets. This limit applies to
securities purchased by the Fund which are deemed to be illiquid by the
Trustees, including certain restricted securities and repurchase agreements
providing for settlement in more than seven days after notice.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

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

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

COVERED CALL OPTIONS

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

AMERICAN DEPOSITARY RECEIPTS

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

SECURITIES OF FOREIGN ISSUERS

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

The Fund will take advantage of the unusual opportunities for higher returns
available from investing in developing countries and may invest up to 10% of its
total assets in the utility 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.

INVESTMENT RISKS

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

CONSIDERATIONS OF
UTILITY SECURITIES

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

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

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

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

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

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

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

TELECOMMUNICATIONS

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

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

GAS

Gas transmission and distribution companies are undergoing significant changes.
In the United States, the Federal Energy RegulatoryCommission is reducing its
regulation of interstate transmission of gas. Gas utility companies in the past
have been adversely affected by disruptions in the oil industry, increased
concentration, and increased competition.

WATER

Water utility companies purify, distribute, and sell water. This industry is
highly fragmented because most of the water supplies are owned by local
authorities. Water utility companies are generally mature and are experiencing
little or no per capita volume growth. Investment opportunities from
consolidation and foreign participation in this industry occurs.

REDUCING RISKS OF UTILITY SECURITIES

The Fund's adviser will use professional portfolio management techniques,
including credit research and diversification, designed to reduce risk. The
adviser will perform its own credit analysis in addition to using recognized
rating agencies and other sources, including discussions with the issuer's
management, the judgment of other investment analysts, and its own informed
judgment. The adviser's credit analysis will consider the issuer's financial
soundness, its responsiveness to changes in interest rates and business
conditions, and its anticipated cash flow, interest or dividend coverage, and
earnings. In evaluating an issuer, the adviser places special emphasis on the
estimated current value of the issuer's assets rather than historical costs.

EXCHANGE RATES

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

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

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

FOREIGN COMPANIES

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

. less publicly available information about foreign companies;

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

. less readily available market quotations on foreign companies;

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

. generally lower foreign stock market value;

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

. foreign brokerage commissions may be higher;

. unreliable mail service between countries; and

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

RISK CONSIDERATIONS IN
DEVELOPING COUNTRIES

Securities prices in developing countries can be significantly more volatile
than in developed countries, reflecting the greater uncertainties of investing
in lesser developed markets and economies. In particular, developing countries
may have relatively unstable governments, and may present the risk of
nationalization of businesses, expropriation, confiscatory taxation or, in
certain instances, reversion to closed market, centrally planned economies. Such
countries may also have restrictions on foreign ownership or prohibitions on the
repatriation of assets, and may have less protection of property rights than
developed countries.

The economies of developing countries may be predominantly based on only a few
industries or dependent on revenues from particular commodities or on
international aid or development assistance, may be highly vulnerable to changes
in local or global trade conditions, and may suffer from extreme and volatile
debt burdens or inflation rates. In addition, securities markets in developing
countries may trade a small number of securities and may be unable to respond
effectively to increased trading volume, potentially resulting in a lack of
liquidity and in volatility in the price of securities traded on those markets.
Also, securities markets in developing countries typically offer less regulatory
protection for investors.

U.S. GOVERNMENT POLICIES

In the past, U.S. government policies have discouraged or restricted certain
investments abroad by investors such as the Fund. Although the Fund is unaware
of any current restrictions, investors are advised that these policies could be
reinstituted.

INVESTMENT LIMITATIONS

The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:

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

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

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

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

. borrow money, issue senior securities, or pledge assets, except that under
certain circumstances the Fund may borrow money and engage in reverse
repurchase transactions in amounts up to one-third of the value of its net
assets, including the amounts borrowed, and pledge up to 10% of the value of
those assets to secure such borrowings. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any such
borrowings are outstanding. However, during the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements;

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

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

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

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

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

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

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

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

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

The Fund offers investors four classes of Shares that carry sales charges and
contingent deferred sales charges in different forms and amounts and which bear
different levels of expenses. This prospectus applies only to Class A Shares,
Class B Shares and Class C Shares.

CLASS A SHARES

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

CLASS B SHARES

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

CLASS C SHARES

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

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

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

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

- -------------------------------------------------------
INVESTING IN CLASS A SHARES

Class A Shares are sold at their net asset value next determined after an order
is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES SALES DEALER
CHARGE CHARGE CONCESSION
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
OF PUBLIC OF NET OF PUBLIC
OFFERING AMOUNT OFFERING
AMOUNT OF TRANSACTION PRICE INVESTED PRICE
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 but less than
$100,000 4.50% 4.71% 4.00%
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 2.50% 2.56% 2.25%
$500,000 but less than
$1 million 2.00% 2.04% 1.80%
$1 million or greater 0.00% 0.00% 0.25%*
</TABLE>

*See sub-section entitled "Dealer Concession."

No sales charge is imposed for Class A Shares purchased through financial
intermediaries that do not receive a reallowance of a sales charge. However,
investors who purchase Class A Shares through a trust department, investment
adviser, or other financial intermediary may be charged a service or other fee
by the financial intermediary. Additionally, no sales charge is imposed on
shareholders designated as Liberty Life Members or on Class A Shares purchased
through "wrap accounts" or similar programs under which clients pay a fee for
services.

DEALER CONCESSION

For sales of Class A Shares, a dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid to a
dealer will be retained by the distributor. However, the distributor, may offer
to pay dealers up to 100% of the sales charge retained by it. Such payments may
take the form of cash or promotional incentives, such as reimbursement of
certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year following the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.

The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.

REDUCING OR ELIMINATING
THE SALES CHARGE

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

. quantity discounts and accumulated purchases;

. concurrent purchases;

. signing a 13-month letter of intent;

. using the reinvestment privilege; or

. purchases with proceeds from redemptions of unaffiliated investment company
shares.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

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

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

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

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge reduction, a shareholder has the
privilege of combining concurrent purchases of two or more Class A Shares of
certain other funds for which Federated Investors serve as investment advisers
or principal underwriter (the "Federated Funds"), the purchase price of which
includes a sales charge. For example, if a shareholder concurrently invested
$30,000 in one of the other Class A Shares in the Federated Funds with a sales
charge, and $20,000 in this Fund, the sales charge would be reduced.

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

LETTER OF INTENT

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

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

While this letter of intent will not obligate the shareholder to purchase
Shares, each purchase during the period will be at the sales charge applicable
to the total amount intended to be purchased. At the time a letter of intent is
established, current balances in accounts in any Class A Shares of any Federated
Funds, excluding money market accounts, will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. Prior trade prices will not
be adjusted.

REINVESTMENT PRIVILEGE

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

PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES

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

INVESTING IN CLASS B SHARES

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

CONVERSION OF CLASS B SHARES

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

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

INVESTING IN CLASS C SHARES

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

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

An investor may call his financial institution (such as a bank or an investment
dealer) to place an order to purchase Shares. Orders placed through a financial
institution are considered received when the Fund is notified of the purchase
order or when payment is converted into federal funds. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for Shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly. Financial
institutions may charge additional fees for their services.
The financial institution which maintains investor accounts in Class B Shares or
Class C Shares with the Fund must do so on a fully disclosed basis unless it
accounts for share ownership periods used in calculating the contingent deferred
sales charge (see "Contingent Deferred Sales Charge"). In addition, advance
payments made to financial institutions may be subject to reclaim by the
distributor for accounts transferred to financial institutions which do not
maintain investor accounts on a fully disclosed basis and do not account for
share ownership periods.

PURCHASING SHARES BY WIRE

Once an account has been established, Shares may be purchased by Federal Reserve
wire by calling the Fund. All information needed will be

taken over the telephone, and the order is considered received when State Street
Bank receives payment by wire. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: (Fund Name) (Fund Class); (Fund
Number); Account Number; Trade Date and Order Number; Group Number or Dealer
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.

PURCHASING SHARES BY CHECK

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

SYSTEMATIC INVESTMENT PROGRAM

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

RETIREMENT PLANS

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

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

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at net asset value. Neither the Fund nor any of the
Federated Funds imposes any additional fees on exchanges. Shareholders in
certain other Federated Funds may exchange all or some of their Shares for Class
A Shares.

CLASS B SHARES

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

CLASS C SHARES

Class C shareholders may exchange all or some of their Shares for Class C Shares
in other Federated Funds at net asset value without a contingent deferred sales
charge. (Not all Federated Funds currently offer Class C Shares. Contact your
financial institution regarding the availability of other Class C Shares in the
Federated Funds.) To the extent that a shareholder exchanges Shares for Class C
Shares in other Federated Funds, the time for which the exchanged-for Shares are
to be held will be added to the time for which exchanged-from Shares were held
for purposes of satisfying the applicable holding period. For more information,
see "Contingent Deferred Sales Charge."

Please contact your financial institution directly or Federated Securities Corp.
at 1-800-341-7400 for information and prospectuses for the Federated Funds into
which your Shares may be exchanged free of charge.

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

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

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

TAX CONSEQUENCES

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

MAKING AN EXCHANGE

Instructions for exchanges for Federated Funds may be given in writing or by
telephone. Written instructions may require a signature guarantee. Shareholders
of the Fund may have difficulty in making exchanges by telephone through brokers
and other financial institutions during times of drastic economic or market
changes. If a shareholder cannot contact his broker or financial institution by
telephone, it is recommended that an exchange request be made in writing and
sent by overnight mail to Federated Shareholder Services Company, 1099 Hingham
Street, Rockland, Massachusetts 02370-3317.

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

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

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

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Investors who redeem Shares through a financial intermediary may be
charged a fee by that financial intermediary. Redemption requests must be
received in proper form and can be made as described below.

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

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in any amount by calling the Fund provided the Fund has a
properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds will be mailed in the form of a check, to
the shareholder's address of record or by wire transfer to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System. The minimum amount for a wire transfer is $1,000. Proceeds from redeemed
Shares purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests received on holidays when
wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

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

REDEEMING SHARES BY MAIL

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

If share certificates have been issued, they should be sent unendorsed with the
written request by registered or certified mail to the address noted above.

The written request should state: Fund Name and the Class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, Trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public.

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

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

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

Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Shares, and the fluctuation
of the net asset value of Shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000 other than retirement accounts subject to required minimum
distributions. A shareholder may apply for participation in this program through
his financial institution. Due to the fact that Class A Shares are sold with a
sales charge, it is not advisable for shareholders to continue to purchase Class
A Shares while participating in this program. A contingent deferred sales charge
may be imposed on Class B Shares and Class C Shares.

CONTINGENT DEFERRED SALES CHARGE

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

CLASS A SHARES

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

CLASS B SHARES

Shareholders redeeming Class B Shares from their Fund accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEARS OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

CLASS C SHARES

Shareholders redeeming Class C Shares from their Fund accounts within one full
year of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Fund's distributor of 1.00%. Any applicable contingent
deferred sales charge will be imposed on the lesser of the net asset value of
the redeemed Shares at the time of purchase or the net asset value of the
redeemed Shares at the time of redemption.

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

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

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of the last
surviving shareholder; (2) redemptions representing minimum required
distributions from an Individual Retirement Account or other retirement plan to
a shareholder who has attained the age of 70-1/2;(3) involuntary redemptions by
the Fund of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Fund distributions reinvested in the Fund Shares, and has a value of at
least $10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Fund. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program,
contact your financial intermediary or the Fund. No contingent deferred sales
charge will be imposed on redemptions of Shares held by Directors, employees and
sales representatives of the Fund, the distributor, or affiliates of the Fund or
distributor, and their immediate family members; employees of any financial
institution that sells Shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940, or
retirement plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates, or any other
financial institution, to the extent that no payments were advanced for
purchases made through such entities. The Directors reserve the right to
discontinue or modify the elimination of the contingent deferred sales charge.
Shareholders will be notified of a discontinuation. Any Shares purchased prior
to the termination of such waiver would have the contingent deferred sales
charge eliminated as provided in the Fund's prospectus at the time of the
purchase of the Shares. If a shareholder making a redemption qualifies for an
elimination of the contingent deferred sales charge, the shareholder must notify
Federated Securities Corp. or the transfer agent in writing that the shareholder
is entitled to such elimination.

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

CERTIFICATES AND CONFIRMATIONS

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

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

DIVIDENDS

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

CAPITAL GAINS

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

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the Class A Share required

minimum value of $500 or the required minimum value of $1,500 for Class B Shares
and Class C Shares. This requirement does not apply, however, if the balance
falls below the required minimum value because of changes in the net asset value
of the respective Share class. Before Shares are redeemed to close an account,
the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.

- -------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

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

INVESTMENT ADVISER

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

ADVISORY FEES

The Adviser receives an annual investment advisory fee equal to .75% of the
Fund's average daily net assets. The Adviser may voluntarily waive a portion of
its fee or reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion.

ADVISER'S BACKGROUND

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

Passport Research, Ltd. 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.

Linda A. Duessel has been the Fund's portfolio manager since April 1995. Ms.
Duessel joined Federated Investors in 1991 and has been a Vice President of the
Fund's investment adviser since 1995. Ms. Duessel was an Assistant Vice
President of the Fund's investment adviser from 1991 until 1995. Ms. Duessel is
a Chartered Financial Analyst and received her M.S. in Industrial Administration
from Carnegie Mellon University.

Both the Fund and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Directors and could
result in severe penalties.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Class C Shares purchased by their clients or customers at
the time of purchase. These payments will be made directly by the distributor
from its assets, and will not be made from assets of the Fund. Financial
institutions may elect to waive the initial payment described above; such waiver
will result in the waiver by the Fund of the otherwise applicable contingent
deferred sales charge.

The distributor will pay dealers an amount equal to 5.50% of the net asset value
of Class B Shares purchased by their clients or customers. These payments will
be made directly by the distributor from its assets, and will not be made from
the assets of the Fund. Dealers may voluntarily waive receipt of all or any
portion of these payments. The distributor may pay a portion of the distribution
fee discussed below to financial institutions that waive all or any portion of
the advance payments.

DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares and Class C Shares will pay a
fee to the distributor in an amount computed at an annual rate of .75% of the
average daily net assets of each class of Shares to finance any activity which
is principally intended to result in the sale of Shares subject to the
Distribution Plan. For Class C Shares, the distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers. With respect to Class
B Shares, because distribution fees to be paid by the Fund to the distributor
may not exceed an annual rate of .75% of each class of Shares' average daily net
assets, it will take the distributor a number of years to recoup the expenses it
has incurred for its sales services and distribution-related support services
pursuant to the Plan.

The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.

In addition, the Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Fund may make payments up to .25% of the average daily net asset value of
Class A Shares, Class B Shares, and Class C Shares to obtain certain personal
services for shareholders and for the maintenance of shareholder accounts. Under
the Shareholder Services Agreement, Federated Shareholders Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, at the time of
purchase of Class A Shares, an amount equal to .50% of the net asset value of
Class A Shares purchased by their clients or customers under certain qualified
retirement plans as approved by Federated Securities Corp. (Such payments are
subject to a reclaim from the financial institution should the assets leave the
program within 12 months after purchase.)

Furthermore, with respect to Class A Shares, Class B Shares, and Class C
Shares, in addition to payments made pursuant to the Distribution Plan and
Shareholder Services Agreement, Federated Securities Corp and Federated
Shareholder Services, from their own assets, may pay financial institutions
supplemental fees for the performance of sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Adviser or its
affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors as
specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

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

BROKERAGE TRANSACTIONS

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

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

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each shareholder has one vote in Director elections and other matters submitted
to shareholders for vote. All shares of each portfolio or class in the Fund have
equal voting rights, except that in matters affecting only a particular
portfolio or class, only shares of that particular portfolio or class are
entitled to vote. As of April 4, 1997, Merrill Lynch Pierce Fenner & Smith,
Jacksonville, Florida, acting in various capacities for numerous accounts, was
the owner of record of 29.49% of the voting securities of the Class C Shares of
the Fund, and therefore, may, for certain purposes be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.

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

Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.

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

FEDERAL INCOME TAX

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

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

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

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

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

From time to time, the Fund advertises its total return and yield for each class
of Shares including Class F Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in each class of Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of each class of Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by each class of Shares over a thirty-day period by the maximum offering price
per share of each class on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by each class of Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales charge and
other similar non-recurring charges, such as the contingent deferred sales
charge, which, if excluded, would increase the total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares.

From time to time, advertisements for the Class A Shares, Class B Shares, Class
C Shares and Class F Shares of the Fund may refer to ratings, rankings, and
other information in certain financial publications and/or compare the
performance of Class A Shares, Class B Shares, Class C Shares and Class F Shares
to certain indices.

- -------------------------------------------------------
OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Class F Shares. Class F
Shares are sold primarily to customers of financial institutions subject to a
front-end sales charge, a contingent deferred sales charge, a Shareholder
Services Agreement, and a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which the minimum investment is $50.

Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to
certain of the same expenses; however, the front-end sales charge for Class F
Shares is lower than that for Class A Shares. Expense differences, however,
between Class A Shares, Class B Shares, Class C Shares and Class F Shares may
affect the performance of each class.

To obtain more information and a prospectus for Class F Shares, investors may
call 1-800-341-7400 or contact their financial institution.

- -------------------------------------------------------
-------------------------------------------------------
ADDRESSES

Federated Utility Fund, Inc.
Class A Shares
Class B Shares
Class C Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER
Passport Research, Ltd.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Center
Pittsburgh, Pennsylvania 15219

FEDERATED UTILITY
FUND, INC.
CLASS A SHARES, CLASS B SHARES,
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1997
[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.
[LOGO OF RECYCLED PAPER]
Cusip 314286105
Cusip 314286204
Cusip 314286303
G01154-01 (4/97)

FEDERATED UTILITY FUND, INC.
CLASS F SHARES

PROSPECTUS

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

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

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

Prospectus dated April 30, 1997

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

TABLE OF CONTENTS

Summary of Fund Expenses.......................................................1
Financial Highlights...........................................................2
General Information............................................................3
Investment Information.........................................................3
Investment Objective.........................................................3
Investment Policies..........................................................3
Investment Risks.............................................................5
Investment Limitations.......................................................8
Net Asset Value...............................................................10
Investing in Class F Shares...................................................10
Share Purchases.............................................................10
Minimum Investment Required.................................................11
What Shares Cost............................................................11
Eliminating the Sales Charge................................................12
Systematic Investment Program...............................................13
Exchange Privileges.........................................................13
Certificates and Confirmations..............................................14
Dividends...................................................................14
Capital Gains...............................................................14
Redeeming Class F Shares......................................................15
Through a Financial Institution.............................................15
Redeeming Shares by Telephone...............................................15
Redeeming Shares By Mail....................................................16
Contingent Deferred Sales Charge............................................16
Systematic Withdrawal Program...............................................17
Accounts With Low Balances..................................................18
Fund Information..............................................................18
Management of the Fund......................................................18
Distribution of Class F Shares..............................................19
Administration of the Fund..................................................20
Brokerage Transactions......................................................20
Shareholder Information.......................................................21
Voting Rights...............................................................21
Tax Information...............................................................21
Federal Income Tax..........................................................21
Pennsylvania Personal Property Taxes........................................21
Performance Information.......................................................22
Other Classes of Shares.......................................................23
Addresses.....................................................................24

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

SUMMARY OF FUND EXPENSES

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

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.63%
12b-1 Fee..................................................................................................... None
Total Other Expenses.......................................................................................... 0.49%
Shareholder Services Fee (after waiver) (3).................................................... 0.22%
Total Operating Expenses (4)......................................................................... 1.12%
</TABLE>

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

(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholders services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.27% absent the voluntary
waivers of a portions of the management fee and the shareholder services
fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Class F Shares will bear,
either directly or indirectly. For more complete descriptions of the various
costs and expenses, see "Investing in Class F Shares" and "Fund Information."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period, and
(3) payment of the maximum sales charge................................... $32 $56 $71 $145
You would pay the following expenses on the same investment, assuming no
redemption................................................................ $21 $45 $71 $145
</TABLE>

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

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

FINANCIAL HIGHLIGHTS--CLASS F SHARES
FEDERATED UTILITY FUND, INC.
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report, dated April 17, 1997, on the Fund's
financial statements for the year ended February 28, 1997, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated herein by reference. This table should be read in conjunction with
the Fund's financial statements and notes thereto, which may be obtained from
the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
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 (loss) 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.

Further information about the Fund's performance is contained in the Fund's
Annual Report, dated February 28, 1997, which can be obtained free of charge.

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

GENERAL INFORMATION

The Fund was incorporated under the laws of the State of Maryland on April 20,
1987. From the date of the Fund's initial public offering in 1987 until May 27,
1988, the Fund was operated as a closed-end investment company. On May 16, 1988,
the shareholders of the Fund approved the conversion of the Fund from a
closed-end investment company to an open-end investment company. Shareholders of
the Fund, at a meeting held January 18, 1990, approved the Fund's name change
from Progressive Income Equity Fund, Inc. to Liberty Utility Fund, Inc. At a
meeting of the Board of Directors held on February 26, 1996, the Directors
approved an amendment to the Articles of Incorporation to change the name of
Liberty Utility Fund, Inc. to Federated Utility Fund, Inc. The Articles of
Incorporation permit the Fund to offer separate series of shares representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to the Fund, as of the date of
this prospectus, the Board of Directors has established four classes of shares,
known as Class A Shares, Class B Shares, Class C Shares and Class F Shares
(individually and collectively as the context requires, "Shares"). This
prospectus relates only to the Class F Shares of the Fund.

Shares of the Fund are designed to give institutions and individuals a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio comprised primarily of equity securities. A minimum
initial investment of $1,500 is required, unless the investment is in a
retirement account, in which case the minimum initial investment is $50.

The Fund's current net asset value and offering price may be found in the mutual
funds section of local newspapers under "Federated" and the appropriate class
designation listing.

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

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

Debt obligations in the portfolio, at the time they are purchased, shall be
limited to those which fall in one of the following categories: (i) rated
investment grade by either Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P"), or (ii) determined by the Adviser to be
of investment grade and not rated by either of the aforementioned rating
services, or (iii) the subordinated debt of issuers whose senior debt
obligations are deemed to be investment grade by either of the aforementioned
rating services. These subordinated debt securities may be unrated or rated
below investment grade by Moody's or S&P. Securities rated in the lowest
category of investment grade have speculative characteristics. Changes in
economic or other circumstances are more likely to lead to weakened capacity to
make principal and interest payments than higher rated bonds. The prices of
fixed income securities fluctuate inversely to the direction of interest rates.

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

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

LENDING OF PORTFOLIO SECURITIES

RESTRICTED AND ILLIQUID SECURITIES

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

COVERED CALL OPTIONS

AMERICAN DEPOSITARY RECEIPTS

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

SECURITIES OF FOREIGN ISSUERS

INVESTMENT RISKS

CONSIDERATIONS OF UTILITY SECURITIES

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

ELECTRIC

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

TELECOMMUNICATIONS

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

GAS

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

WATER

REDUCING RISKS OF UTILITY SECURITIES

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

EXCHANGE RATES

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

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

FOREIGN COMPANIES

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

less publicly available information about foreign companies;

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

less readily available market quotations on foreign companies;

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

generally lower foreign stock market value;

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

foreign brokerage commissions may be higher;

unreliable mail service between countries; and

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

RISK CONSIDERATIONS
IN DEVELOPING COUNTRIES

U.S. GOVERNMENT POLICIES

INVESTMENT LIMITATIONS

The Fund will not change any of the investment limitations described below
without approval of shareholders. The Fund will not:

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

invest more than 5% of the value of its total assets in securities of
companies, including

their predecessors, which have been in operation for less than three years;

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

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

borrow money, issue senior securities, or pledge assets, except that under
certain circumstances the Fund may borrow money and engage in reverse
repurchase transactions in amounts up to one-third of the value of its net
assets, including the amounts borrowed, and pledge up to 10% of the value of
those assets to secure such borrowings. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage, but rather as
a temporary, extraordinary, or emergency measure to facilitate management of
the portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any such
borrowings are outstanding. However, during the period any reverse repurchase
agreements are outstanding, but only to the extent necessary to assure
completion of the reverse repurchase agreements, the Fund will restrict the
purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements;

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

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

invest more than 5% of its net assets in warrants, not more than 2% of which
can be warrants not listed on recognized exchanges; or
invest more than 15% of total assets in securities of foreign issuers not
listed on recognized exchanges.

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

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

- -------------------------------------------------------------------------------
INVESTING IN CLASS F SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased through a financial institution which has a
sales agreement with the distributor or directly from the distributor, Federated
Securities Corp., either by mail or by wire. The Fund reserves the right to
reject any purchase request.

THROUGH A FINANCIAL INSTITUTION

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

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

DIRECTLY BY MAIL

To purchase Shares by mail directly from Federated Securities Corp.:

complete and sign the new account form available from the Fund;

enclose a check made payable to Federated Utility Fund Inc.--Class F Shares;
and

mail both to Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600.

Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.

DIRECTLY BY WIRE

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

The minimum initial investment in Shares is $1,500, except for an IRA account,
which requires a minimum initial investment of $50. Subsequent investments must
be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received, plus a sales charge of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales charge for purchases of $1 million or
more. Shareholders of record in the Fortress Utility Fund on September 30, 1989,
are exempt from the sales charge for purchases of shares of the Fund in their
existing accounts as long as they maintain a $500 balance in the Fund. In
addition, no sales charge is imposed for Shares purchased through bank trust
departments or investment advisers registered under the Investment Advisers Act
of 1940, purchasing on behalf of their clients, or by sales representatives,
Directors, and employees of the Fund, Federated Advisers, and Federated
Securities Corp., or their affiliates, or any investment dealer who has a sales
agreement with Federated Securities Corp., their spouses and children under age
21, or any trusts or pension or profit-sharing plans for these persons, or
retirement plans where the third party administrator has entered into certain
arrangements with Federated Securities Corp. or its affiliates. Unaffiliated
institutions through whom Shares are purchased may charge fees for services
provided which may be related to the ownership of Fund Shares. This prospectus
should, therefore, be read together with any agreement between the customer and
the institution with regard to services provided, the fees charged for these
services, and any restrictions and limitations imposed.

Under certain circumstances, described under "Redeeming Class F Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.

DEALER CONCESSION

For sales of Shares, broker/dealers will normally receive 100% of the applicable
sales charge. Any portion of the sales charge which is not paid to a
broker/dealer will be retained by the distributor. However, from time to time,
and at the sole discretion of the distributor, all or part of that portion may
be paid to a dealer. The sales charge for Shares sold other than through
registered broker/dealers will be retained by Federated Securities Corp.
Federated Securities Corp. may pay fees to banks out of the sales charge in
exchange for sales and/or administrative services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of Shares.

ELIMINATING THE SALES CHARGE

The sales charge can be eliminated on the purchase of Shares through:

quantity discounts and accumulated purchases;

signing a 13-month letter of intent;

using the reinvestment privilege; or

concurrent purchases.

QUANTITY DISCOUNTS AND
ACCUMULATED PURCHASES

There is no sales charge for purchases of $1 million or more. The Fund will
combine purchases made on the same day by the investor, his spouse, and his
children under age 21 when it calculates the sales charge. In addition, the
sales charge is eliminated for purchases of $1 million or more made at one time
by a trustee or fiduciary for a single trust estate or a single fiduciary
account.

If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having current value at the public offering price of $900,000 and he
purchases $100,000 more at the current public offering price, there will be no
sales charge on the additional purchase. The Fund will also combine purchases
for the purpose of reducing the contingent deferred sales charge imposed on some
Share redemptions. For example, if a shareholder already owns Shares having
current value at the public offering price of $1 million and purchases an
additional $1 million at the current public offering price, the applicable
contingent deferred sales charge would be reduced to .50% of those additional
Shares. For more information on the levels of contingent deferred sales charges
and holding periods, see the section entitled "Contingent Deferred Sales
Charge."

To receive the sales charge elimination and/or the contingent deferred sales
charge reduction, Federated Securities Corp. must be notified by the shareholder
in writing or by the shareholder's financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will eliminate the sales charge and/or reduce the contingent
deferred sales charge after it confirms the purchases.

LETTER OF INTENT

If a shareholder intends to purchase at least $1 million of Shares over the
next 13 months, the sales charge may be reduced by signing a letter of intent
to that effect. This letter of intent includes a provision for a sales charge
elimination depending on the amount actually purchased within the 13-month
period and a provision for the Fund's custodian to hold 1.00% of the total
amount intended to be purchased in escrow (in Shares) until such purchase is
completed.

The 1.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent,
which must be $1 million or more of Shares, is not purchased. In this event, an
appropriate number of escrowed Shares may be redeemed in order to realize the
1.00% sales charge.

This letter of intent also includes a provision for reductions in the contingent
deferred sales charge and holding period depending on the amount actually
purchased within the 13-month period. For more information on the various levels
of contingent deferred sales charges and holding periods, see the section
entitled "Contingent Deferred Sales Charge."

This letter of intent will not obligate the shareholder to purchase Shares. The
letter may be dated as of a prior date to include any purchases made within the
past 90 days (purchases within the prior 90 days may be used to fulfill the
requirements of the letter of intent; however, the sales charge on such
purchases will not be adjusted to reflect a lower sales charge).

REINVESTMENT PRIVILEGE

If Shares have been redeemed, the shareholder has a one-time right, within 120
days, to reinvest the redemption proceeds at the next-determined net asset value
without any sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to receive this elimination of the sales charge. If the shareholder
redeems his Shares, there may be tax consequences.

CONCURRENT PURCHASES

For purposes of qualifying for a sales charge elimination, a shareholder has the
privilege of combining concurrent purchases of Class F Shares of two or more
funds for which affiliates of Federated Investors serve as investment adviser or
principal underwriter ("Federated Funds"), the purchase prices of which include
a sales charge. For example, if a shareholder concurrently invested $400,000 in
one of the other Federated Funds and $600,000 in Shares, the sales charge would
be eliminated.

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

SYSTEMATIC INVESTMENT PROGRAM

Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Shares at
the net asset value next determined after an order is received by the Fund, plus
the 1.00% sales charge for purchases under $1 million. A shareholder may apply
for participation in this program through Federated Securities Corp. or his
financial institution.

EXCHANGE PRIVILEGES

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

Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Shareholders who desire to automatically exchange Class F Shares
of a predetermined amount on a monthly, quarterly, or annual basis may take
advantage of a systematic exchange privilege. Further information on these
exchange privileges is available by calling Federated Securities Corp. or the
shareholder's financial institution. The exchange privilege is available to
shareholders residing in any state in which the shares being acquired may be
legally sold.

Before making an exchange, a shareholder must receive a prospectus of the fund
for which the exchange is being made.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Fund, Federated Shareholder Services Company maintains
a share account for each shareholder. Share certificates are not issued unless
requested on the application or by contacting Federated Shareholder Services
Company.

Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during that
month.

DIVIDENDS

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

CAPITAL GAINS

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

- --------------------------------------------------------------------------------
REDEEMING CLASS F SHARES

The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemption requests must be received in proper form and can be made
through a financial institution or directly from the Fund by written request.

THROUGH A FINANCIAL INSTITUTION

A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption requests through a
registered broker/dealer must be received by the broker before 4:00 P.M.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
P.M. (Eastern time) in order for Shares to be redeemed at that day's net asset
value. Redemption requests through other financial institutions must be received
by the financial institution and transmitted to the Fund before 4:00 P.M.
(Eastern time) in order for Shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the Fund. The
financial institution may charge customary fees and commissions for this
service. If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders will be promptly notified.

Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. In the event of drastic economic
or market changes, a shareholder may experience difficulty in redeeming by
telephone. If such a case should occur, another method of redemption, such as
"Redeeming Shares by Mail," should be considered.

Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent instructions.

REDEEMING SHARES BY TELEPHONE

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

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.

The written request should state: the Fund name and the Share Class name ; the
account name as registered with the Fund; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

SIGNATURES

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by:

a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");

a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange;

a savings bank or savings association whose deposits are insured by the Savings
Association Insurance Fund, which is administered by the FDIC; or

any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Fund does not accept signatures guaranteed by a notary public.

RECEIVING PAYMENT

A check for the proceeds is mailed within seven days after receipt of proper
written redemption instructions from a broker or from the shareholder.

CONTINGENT DEFERRED SALES CHARGE

Shareholders redeeming Class F Shares from their Fund account within certain
periods of the purchase date of those Shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the Shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
AMOUNT OF SALES
PURCHASE SHARES HELD CHARGE
<S> <C> <C>
Up to $1,999,999 4 years or less 1%
$2,000,000 to
$4,999,999 2 years or less .50%
$5,000,000
or more 1 year or less .25%
</TABLE>

To the extent that a shareholder exchanges between or among Class F Shares in
other Federated Funds, the time for which the exchanged-for Shares were held
will be added, or "tacked", to the time for which the exchanged-from

Shares were held for purposes of satisfying the one-year holding period.

In instances in which Shares have been acquired in exchange for Class F Shares
in other Federated Funds, (i) the purchase price is the price of the Shares when
originally purchased and (ii) the time period during which the Shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on Shares acquired through the reinvestment of
dividends or distributions of long-term capital gains. In computing the amount
of contingent deferred sales charge for accounts with Shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: 1) first of Shares acquired through the reinvestment of dividends and
long-term capital gains, 2) second of purchases of Shares occurring prior to the
number of years necessary to satisfy the applicable holding period, and 3)
finally of purchases of Shares occurring within the current holding period. For
accounts with Shares subject to multiple share holding periods, the redemption
sequence will be determined first, with reinvested dividends and long-term
capital gains, and second, on a first-in, first-out basis.

The contingent deferred sales charge will not be imposed when a redemption
results from a tax-free return under the following circumstances: (i) a total or
partial distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan, or a custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
Contingent deferred sales charges are not charged in connection with exchanges
of Shares for Class F Shares in certain other Federated Funds, or in connection
with redemptions by the Fund of accounts with low balances. Shares of the Fund
originally purchased through a bank trust department, investment adviser
registered under the Investment Advisers Act of 1940, as amended, or retirement
plans where the third party administrator has entered into certain arrangements
with Federated Securities Corp. or its affiliates, are not subject to the
contingent deferred sales charge, to the extent that no payment was advanced for
purchases made by such entities.

SYSTEMATIC WITHDRAWAL PROGRAM

Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to Shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund. For this reason, payments under this program should not be considered
as yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have invested at least
$10,000 in the Fund (at current offering price), other than retirement accounts
subject to required minimum distributions.

A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that Shares are sold with a sales charge and
contingent deferred sales charge, it is not advisable for shareholders to be
purchasing Shares while participating in this program.

A contingent deferred sales charge is charged for Shares redeemed through this
program within four years of their purchase dates.

ACCOUNTS WITH LOW BALANCES

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

- --------------------------------------------------------------------------------
FUND INFORMATION

MANAGEMENT OF THE FUND

BOARD OF DIRECTORS

INVESTMENT ADVISER

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

ADVISORY FEES

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.

DISTRIBUTION OF CLASS F SHARES

Federated Securities Corp. is the principal distributor for Class F Shares of
the Fund. Federated Securities Corp. is located at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. It is a Pennsylvania corporation organized
on November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of Federated
Investors.

SHAREHOLDER SERVICES

The Fund has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, under which the Fund
will make payments up to .25% of the average daily net asset value of Class F
Shares, computed at an annual rate, to obtain certain personal services for
shareholders and to provide the maintenance of shareholder accounts
("shareholder services'). From time to time and for such periods as deemed
appropriate, the amount stated may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedule of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS
TO FINANCIAL INSTITUTIONS

Federated Securities Corp. will pay financial institutions, for distribution
and/or administrative services, an amount equal to 1.00% of the offering price
of the Shares acquired by their clients or customers on purchases up to
$1,999,999, .50% of the offering price on purchases of $2,000,000 to $4,999,999,
and .25% of the offering price on purchases of $5,000,000 or more. (This fee is
in addition to the 1.00% sales charge on purchases of less that $1 million.) The
financial institutions may elect to waive the initial payment described above;
such waiver will result in the waiver by the Fund of the otherwise applicable
contingent deferred sales charge.

Furthermore, with respect to Class F Shares, in addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of sales services,
distribution-related support services, or shareholder services. The support may
include sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM
ADMINISTRATIVE AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>

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

BROKERAGE TRANSACTIONS

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

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

SHAREHOLDER INFORMATION

VOTING RIGHTS

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

FEDERAL INCOME TAX

PENNSYLVANIA PERSONAL PROPERTY TAXES

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

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

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

From time to time, the Fund advertises its total return and yield for Class F
Shares.

Total return represents the change, over a specific period of time, in the value
of an investment in Class F Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Class F Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
F Shares over a thirty-day period by the maximum offering price per share of
Class F Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Class F Shares, and therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The performance information reflects the effect of the maximum sales charge, and
the contingent deferred sales charge, which, if excluded, would increase the
total return and yield.

Total return and yield will be calculated separately for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. Because Class B Shares and Class C
Shares are subject to Rule 12b-1 fees, the yield for Class A Shares and Class F
Shares, for the same period, may exceed that of Class B Shares and Class C
Shares. Because Class A Shares are subject to a higher maximum sales charge, the
total return for Class B Shares, Class C Shares and Class F Shares, for the same
period, will exceed that of Class A Shares.

- --------------------------------------------------------------------------------
OTHER CLASSES OF SHARES

The Fund also offers other classes of shares called Class A Shares, Class B
Shares and Class C Shares which are all sold primarily to customers of financial
institutions subject to certain differences.

Class A Shares are sold subject to a front-end sales charge and a Shareholder
Services Plan. Investments in Class A Shares are subject to a minimum initial
investment of $500, unless the investment is in a retirement account, in which
case the minimum investment is $50.

Class B Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class B Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.
Class C Shares are sold at net asset value subject to a contingent deferred
sales charge, a Rule 12b-1 Plan and a Shareholder Services Plan. Investments in
Class C Shares are subject to a minimum investment of $1,500, unless the
investment is in a retirement account, in which case the minimum investment is
$50.

Class A Shares, Class B Shares, Class C Shares and Class F Shares are subject to
certain of the same expenses. Expense differences, however, between Class A
Shares, Class B Shares Class C Shares and Class F Shares, may affect the
performance of each class.

To obtain more information and a combined prospectus for Class A Shares, Class B
Shares and Class C Shares, investors may call 1-800-341-7400 or contact their
financial institution.

- --------------------------------------------------------------------------------
ADDRESSES

Federated Utility Fund, Inc.
Class F Shares
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

INVESTMENT ADVISER
Passport Research, Ltd.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Center
Pittsburgh, Pennsylvania 15219

FEDERATED UTILITY
FUND, INC.
CLASS F SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1997
[LOGO] FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 314286402
G01154-03-F (4/97) [recycle logo]

FEDERATED UTILITY FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
CLASS F SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus for Class A Shares, Class B Shares, and Class C Shares, and
the prospectus for Class F Shares of Federated Utility Fund, Inc. (the
"Fund") each dated April 30, 1997. This Statement is not a prospectus
itself. You may request a copy of either prospectus or a paper copy of
this Statement, if you received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1997

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314286105
Cusip 314286204
Cusip 314286303
Cusip 314286402
G-1154-02 (4/97)

GENERAL INFORMATION ABOUT THE FUND 1

INVESTMENT OBJECTIVES AND POLICIES 1

Temporary Investments 1
Units of Master Limited Partnerships 2
Convertible Securities 2
Repurchase Agreements 2
Lending of Portfolio Securities 2
Restricted Securities 2
When-Issued and Delayed Delivery Transactions 3
Reverse Repurchase Agreements 3
Covered Call Options 3
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3

FEDERATED UTILITY FUND, INC. MANAGEMENT 6

Fund Ownership 10
Directors Compensation 10
INVESTMENT ADVISORY SERVICES 11

Adviser to the Fund 11
Advisory Fees 11
BROKERAGE TRANSACTIONS 11

OTHER SERVICES 12

Fund Administration 12
Custodian and Portfolio Accountant 12
Transfer Agent 12

Independent Auditors 12
PURCHASING SHARES 12

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
AGREEMENT 12

Conversion to Federal Funds 13
Purchases by Sales Representatives, Fund
Directors, and Employees 13
Exchanging Securities for Fund Shares 13
DETERMINING NET ASSET VALUE 14

Determining Market Value of Securities 14
EXCHANGE PRIVILEGE 14

Reduced Sales Charge 14
Requirements for Exchange 14
Tax Consequences 15
Making an Exchange 15
REDEEMING SHARES 15

Redemption in Kind 15
Elimination of the Contingent Deferred Sales
Charge 16
MASSACHUSETTS PARTNERSHIP LAW 16

TAX STATUS 16

The Fund's Tax Status 16
Shareholders' Tax Status 16
TOTAL RETURN 16

YIELD 17

PERFORMANCE COMPARISONS 17

Economic and Market Information 18
ABOUT FEDERATED INVESTORS 18

Mutual Fund Market 19
Institutional Clients 19
Bank Marketing 19
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 19
FINANCIAL STATEMENTS 19

APPENDIX 20

GENERAL INFORMATION ABOUT THE FUND

The Fund was incorporated under the laws of the State of Maryland on April
20, 1987. It is qualified to do business as a foreign corporation in
Pennsylvania. Shareholders of the Fund, at a meeting held January 18, 1990,
shareholders approved the Fund's name change from `Progressive Income
Equity Fund, Inc.''to ``Liberty Utility Fund, Inc.'' On March 30, 1996,
the Fund's name was changed to `Federated Utility Fund, Inc.''
Shares of the Fund are offered in four classes, known as Class A Shares,
Class B Shares, Class C Shares, and Class F Shares (individually and
collectively referred to as `Shares,'' as the context may require). This
Statement of Additional Information relates to all classes of Shares of the
Fund.

INVESTMENT OBJECTIVES AND POLICIES

The primary investment objective of the Fund is current income and long-
term growth of income. Capital appreciation is a secondary objective. The
Fund will seek to achieve its investment objective by investing in a
diversified portfolio comprised primarily of equity securities. The
investment objective cannot be changed without approval of shareholders.
The Fund's investment approach is based on the conviction that over the
long term the economy will continue to expand and develop and that this
economic growth will be reflected in the growth of the revenues and
earnings of utility companies.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:

oinstruments of domestic and foreign banks and savings associations
if they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
insured by the Bank Insurance Fund (``BIF''), which is administered
by the Federal Deposit Insurance Corporation (``FDIC''), or the
Savings Association Insurance Fund (``SAIF''), which is administered
by the FDIC; and

oprime commercial paper (rated A-1 by Standard and Poor's Ratings
Group, Prime-1 by Moody's Investors Service, Inc., or F-1 by Fitch
Investors Service).

U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as
U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always
receive financial support from the U.S. government are:
oFarm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks, and Banks for Cooperatives;
oFederal Home Loan Banks;
oFarmers Home Administration; and
oFederal National Mortgage Association.

UNITS OF MASTER LIMITED PARTNERSHIPS
The Fund may invest in units of participation in master limited
partnerships. Master limited partnerships are generally partnerships with a
large number of limited partners whose ownership interests are publicly
traded. The Fund will not invest in partnerships investing in real estate
or real estate investments. The Fund will invest only in units of
participation in master limited partnerships that are traded on a national
securities exchange.

CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. A convertible security is a
fixed income security (a bond or preferred stock) which may be converted at
a stated price within a specified period of time into a certain quantity of
common stock of the same or a different issuer. Convertible securities are
senior to common stocks in a corporation's capital structure, but are
usually subordinated to similar nonconvertible securities. While providing
a fixed income stream (generally higher in yield than the income derivable
from a common stock but lower than that afforded by a similar
nonconvertible security), a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the
capital appreciation attendant upon a market price advance in the
convertible security's underlying common stock.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser,
Passport Research, Ltd., (the `Adviser''), to be creditworthy pursuant to
guidelines established by the Board of Directors (the `Directors'').

LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Fund does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
RESTRICTED SECURITIES
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under federal securities
law, and is generally sold to institutional investors, such as the Fund,
who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) paper, thus
providing liquidity.

The Directors consider the following criteria in determining the liquidity
of certain restricted securities:
othe frequency of trades and quotes for the security;

othe number of dealers willing to purchase or sell the security and
the number of potential buyers;
odealer undertakings to make a market in the security; and
othe nature of the security and the nature of the marketplace trades.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund sufficient to make payment for the securities to be purchased are
segregated on the Fund's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Fund does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Fund transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Fund to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Fund will be able to avoid
selling portfolio instruments at a disadvantageous time.

When effecting reverse repurchase agreements, liquid assets of the Fund, in
a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction
is settled.
COVERED CALL OPTIONS
The Fund will receive a premium for writing a call option which increases
the Fund's return in the event the option expires unexercised or is closed
out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to
the exercise price of the option, the term of the option and the volatility
of the market price of the underlying security. By writing a call option,
the Fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option.
The Fund may terminate a call option it has written prior to expiration of
the option by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund
will realize a gain or loss from such transaction if the cost of such
transaction is less or more than the premium received from writing the
option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security,
any loss resulting from repurchase of a call option is likely to be offset
in whole or in part by the unrealized appreciation of the underlying
security owned by the Fund.
PORTFOLIO TURNOVER

The Adviser does not anticipate that portfolio turnover will result in
adverse tax consequences. However, relatively high portfolio turnover may
result in high transaction costs to the Fund. For the fiscal years ended

February 28, 1997 and February 29, 1996, the portfolio turnover rates were
44% and 76%, respectively.

INVESTMENT LIMITATIONS

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

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

extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
such borrowings are outstanding. However, during the period any
reverse repurchase agreements are outstanding, but only to the extent
necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money
market instruments maturing on or before the expiration date of the
reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not pledge, mortgage, or hypothecate its assets, except
to secure permitted borrowings. In those cases, it may pledge,
mortgage, or hypothecate up to 10% of the value of assets to secure
such borrowings (the deposit in escrow of securities in connection
with the writing of call options or collateralizing loans of
securities is not deemed to be a pledge or hypothecation for any
purpose).
The preceding limitations regarding buying on margin, borrowing money, and
pledging assets do not apply to intra-day cash advances made by the Fund's
custodian, or the grant of a security interest in securities by the Fund to
its custodian to collateralize such intra-day cash advances in order to
enable the Fund to settle securities purchases or to redeem shares of the
Fund.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, which have
been in operation for less than three years.

UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objectives, policies, and
limitations.
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its total assets (valued at
the time of investment) in the securities of any one issuer, except
that this restriction does not apply to cash and cash items,
repurchase agreements, and securities issued or guaranteed by the
United States government or its agencies or instrumentalities; or
acquire more than 10% of any class of voting securities of any one
issuer (at time of acquisition).
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities
up to one-third of the value of its total assets. This shall not
prevent the purchase or holding of corporate bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements, or other transactions which are permitted by
the Fund's investment objectives and policies.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment. The Fund's
investment in put or call options, straddles, spreads, or any
combination thereof shall not exceed 5% of the Fund's total assets.

RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in
securities subject to restrictions on resale under federal securities
law (except for commercial paper issued under Section 4(2) of the
Securities Act of 1933).
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants, not
more than 2% of which can be warrants which are not listed on
recognized exchanges.
INVESTING IN SECURITIES OF FOREIGN ISSUERS
The Fund will not invest more than 15% of its total assets in
securities of foreign issuers not listed on recognized exchanges.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its total assets in illiquid
securities, including repurchase agreements providing for settlement
in more than seven days after notice.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND
DIRECTORS OF THE FUND
The Fund will not purchase or retain the securities of any issuer if
the officers and Directors of the Fund or its Adviser owning
individually 1/2 of 1% of the issuer's securities together own more
than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or mineral
exploration or development programs, except it may purchase the
securities of issuers which invest in or sponsor such programs.

INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate or any interest
therein, except that the Fund may invest in securities secured by real
estate or interests therein, such as mortgage pass-throughs, pay-
throughs, collateralized mortgage obligations, and securities issued
by companies that invest in real estate or interests therein. The Fund
will not invest in limited partnerships investing in real estate or
real estate investments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase or retain shares of any open-end investment
company (exclusive of shares acquired as a result of merger,
consolidation, or other plan of reorganization).
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not invest for the purpose of exercising control over or
management of any company.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities or commodity contracts.
If a percentage restriction set forth above is adhered to at the time a
transaction is effected, later changes in percentage resulting from changes
in value or in the number of outstanding securities of an issuer will not
be considered a violation.
The Fund will not purchase any securities while borrowings in excess of 5%
of the value of its total assets are outstanding.
The Fund did not borrow money or invest in reverse repurchase agreements in
excess of 5% of the value of its net assets during the last fiscal year and
has no present intention to do so in the current fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association having capital, surplus,

and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''

FEDERATED UTILITY FUND, INC. MANAGEMENT

Officers and Directors are listed with their addresses, birthdates, present
positions with Federated Utility Fund, Inc., and principal occupations.

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

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

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

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

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

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

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Director

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Director
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Director
Retired Attorney and Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Director
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Director
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference

Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.

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

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Director of the Company.

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

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

*This Director is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, `The Funds'' and ``Funds'' mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc. ; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.

Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.

FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding Shares.

As of April 4, 1997, the following shareholder of record owned 5% or more
of the outstanding Class A Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, 5.83%.
As of April 4, 1997, the following shareholder of record owned 5% or more
of the outstanding Class B Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, 7.72%.
As of April 4, 1997, the following shareholder of record owned 5% or more
of the outstanding Class C Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, 29.49%.
As of April 4, 1997, the following shareholder of record owned 5% or more
of the outstanding Class F Shares of the Fund: Merrill Lynch Pierce Fenner
& Smith, Jacksonville, Florida, 22.65%.
DIRECTORS COMPENSATION

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

John F. Donahue $0 $0 for the Fund and
Chairman and Director 56 other investment companies in
the Fund Complex
Thomas G. Bigley $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $2,407 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
William J. Copeland $2,407 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
James E. Dowd $2,407 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $2,407 $119,615 for the Fund and
Director 56 other investment companies in
the Fund Complex
Peter E. Madden $2,188 $108,725 for the Fund and

Director 56 other investment companies in
the Fund Complex
Gregor F. Meyer $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
John E. Murray, Jr., $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Wesley W. Posvar $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $2,188 $108,725 for the Fund and
Director 56 other investment companies in
the Fund Complex

*Information is furnished for the fiscal year ended February 28, 1997.
+The information is provided for the last calendar year.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE FUND
The Fund's investment adviser, Passport Research, Ltd. (the `Adviser''),
was organized as a Pennsylvania limited partnership in 1981. Federated
Advisers is the general partner of the Adviser and has a 50.5% interest in
the Adviser. The limited partner of the Adviser is Edward D. Jones & Co.,
which owns a 49.5% interest in the Adviser. Federated Advisers is owned by
FII Holdings, Inc., a subsidiary of Federated Investors. All of the voting

securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher Donahue.
At any time, Edward D. Jones & Co. can require Federated Investors to
repurchase all of its partnership interest in the Adviser at the then
current book value. Edward D. Jones & Co. cannot transfer, sell, or assign
its partnership interest in the Adviser without first offering it to
Federated Investors.
As long as Edward D. Jones & Co. owns a partnership interest in the
Adviser, it cannot acquire, organize, or cause the organization of any
other money market mutual fund or enter into arrangements with an
investment adviser or underwriter of any other money market mutual fund in
which Edward D. Jones & Co. will offer the shares of the other money market
mutual fund. Edward D. Jones & Co. has agreed not to solicit proxies in
opposition to management of the Fund unless a court of competent
jurisdiction finds the conduct of a majority of the Board of Directors
constitutes willful misfeasance, bad faith, gross negligence, or reckless
disregard of its duties.
All of the officers of the Fund, except Daniel A. Burkhardt, are officers
of the Adviser. The relationships are described under `Federated Utility
Fund, Inc. Management.''
The Adviser shall not be liable to the Fund or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES

For its advisory services, Passport Research, Ltd. receives an annual
investment advisory fee as described in the prospectus. During the fiscal

years ended February 28, 1997, February 29, 1996, and February 28, 1995,
the Adviser earned $10,761,268, $6,662,590, and $6,347,619, respectively,
of which $1,691,837, $1,225,393, and $1,683,310, respectively, were
voluntarily waived.
BROKERAGE TRANSACTIONS

The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Fund and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the
fiscal years ended February 28, 1997, February 29, 1996, and February 28,
1995, the Fund paid $1,371,490, $1,678,849, and $1,201,969, respectively,
in brokerage commissions.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund

and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES

FUND ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and
Federated Administrative Services, Inc. may hereinafter collectively be
referred to as the "Administrators". For the fiscal years ended February
28, 1997 and February 29, 1996, and February 28, 1995, the Administrators
earned $1,084,280, $672,236, and $640,686, respectively.

CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to

the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.
PURCHASING SHARES

Except under certain circumstances described in the respective
prospectuses, Shares are sold at their net asset value (plus a sales charge
on Class A Shares and Class F Shares only) on days the New York Stock
Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectuses under "How to Purchase Shares" and
"Investing in Class F Shares."
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES AGREEMENT

With respect to Class B Shares and Class C Shares, the Fund has adopted a
Distribution Plan in accordance with Investment Company Act Rule 12b-1.
Additionally, the Fund has adopted a Shareholder Services Agreement with
respect to all classes of Shares.
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may

include, but are not limited to, marketing efforts; providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.

By adopting the Distribution Plan, (Class B Shares and Class C Shares only)
the Directors expect that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the
Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in
rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the fiscal year ended February 28, 1997, the Fund's Class B Shares and
Class C Shares incurred $692,043 and $466,319, respectively, in
distribution services fees, none of which were waived. In addition, for the
fiscal year ended February 28, 1997, the Class A Shares, Class B Shares,
Class C Shares and Class F Shares, paid shareholder services fees in the

amount of $1,909,404, $230,681, $155,440 and $1,291,565, respectively, of
which $45,826, $0, $564, and $154,988, respectively, were waived.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds before shareholders
begin to earn dividends. Federated Shareholder Services Company acts as the
shareholder's agent in depositing checks and converting them to federal
funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated
Advisers, and Federated Securities Corp., or their affiliates and their
immediate family members, or any investment dealer who has a sales
agreement with Federated Securities Corp., and their spouses and children
under 21, may buy Class A Shares at net asset value without a sales charge.
Shares may also be sold without a sales charge to trusts or pension or
profit-sharing plans for these people.

These sales are made with the purchaser's written assurance that the
purchase is for investment purposes and that the securities will not be
resold except through redemption by the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange convertible securities they already own for Shares,
or they may exchange a combination of convertible securities and cash for
Shares. Any securities to be exchanged must meet the investment objective
and policies of the Fund, must have a readily ascertainable market value,
must be liquid, and must not be subject to restrictions on resale.
The Fund will prepare a list of securities which are eligible for
acceptance and furnish this list to brokers upon request. The Fund reserves

the right to reject any security, even though it appears on the list, and
the right to amend the list of acceptable securities at any time without
notice to brokers or investors.
An investment broker acting for an investor should forward the securities
in negotiable form with an authorized letter of transmittal to Federated
Securities Corp. Federated Securities Corp. will determine that transmittal
papers are in good order and forward them to the Fund's custodian, State
Street Bank and Trust Company. The Fund will notify the broker of its
acceptance and valuation of the securities within five business days of
their receipt by State Street Bank.
The Fund values such securities in the same manner as the Fund values its
portfolio securities. The basis of the exchange will depend upon the net
asset value of Shares on the day the securities are valued. One Share will
be issued for each equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription, conversion, or other rights attached to the securities become
the property of the Fund, along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset
value is calculated by the Fund are described in the respective
prospectuses.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
oaccording to the last sale price on a national securities exchange,
if available;
oin the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices and for bonds
and other fixed income securities, as determined by an independent
pricing service; or
ofor short-term obligations according to the prices as furnished by
an independent pricing service or for short-term obligations with
remaining maturities of 60 days or less at the time of purchase, at
amortized cost or at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data.
EXCHANGE PRIVILEGE

This section relates only to Class F Shares of the Fund. For information
regarding the Exchange Privilege for Class A Shares, Class B Shares, and
Class C Shares of the Fund, please see the prospectus for these classes of
Shares.
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
Class F Shares for Class F Shares in other Federated Funds (which are
sold with a sales charge different from that of the Fund or with no sales
charge and which are advised by subsidiaries or affiliates of Federated

Investors) without the assessment of a contingent deferred sales charge on
the exchanged Shares.
The order also allows certain other funds that are not advised by
subsidiaries or affiliates of Federated Investors, which do not have a
sales charge, to exchange their shares for Class F Shares on a basis other
than their current offering price. These exchanges may be made to the
extent that such shares were acquired in a prior exchange, at net asset
value, for shares of a Federated Fund carrying a sales charge.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales charge, the shareholder must notify Federated
Securities Corp.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Class F Shares having a net
asset value equal to the minimum investment requirements of the fund into
which the exchange is being made. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which
the fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses for eligible
Federated Funds are available by calling the Fund.

TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a short-term or long-term
capital gain or loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for certain Federated Funds may be given in
writing or by telephone. Written instructions may require a signature
guarantee.
TELEPHONE INSTRUCTIONS
Telephone instructions made by the investor may be carried out only if
a telephone authorization form completed by the investor is on file
with the Fund or its agents. If the instructions are given by a
broker, a telephone authorization form completed by the broker must be
on file with the Fund or its agents. Shares may be exchanged between
two funds by telephone only if the two funds have identical
shareholder registrations.
Telephoned exchange instructions may be recorded. They must be
received by the transfer agent before 4:00 p.m. (Eastern time) for
shares to be exchanged that day. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized
or fraudulent telephone instructions.
REDEEMING SHARES

The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Shareholder redemptions may be subject to
a contingent deferred sales charge. Redemption procedures are explained in
the respective prospectuses under "How to Redeem Shares" or "Redeeming
Class F Shares." Although the transfer agent does not charge for telephone

redemptions, it reserves the right to charge a fee for the cost of wire-
transferred redemptions of less than $5,000.
Class B Shares redeemed within six years of purchase, Class C Shares and
applicable Class A Shares redeemed within one year of purchase, and Class F
Shares redeemed within four years of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred
sales charge is based upon the amount of the administrative fee paid at the
time of purchase by the distributor to the financial institutions for
services rendered, and the length of time the investor remains a
shareholder in the Fund. Should financial institutions elect to receive an
amount less than the administrative fee that is stated in the prospectus
for servicing a particular shareholder, the contingent deferred sales
charge and/or holding period for that particular shareholder will be
reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem Shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules,
taking such securities at the same value employed in determining net asset
value and selecting the securities in a manner the Directors determine to
be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Fund is obligated to redeem Shares for any
shareholder in cash up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them

before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.

ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales
Charge may not exceed 12% annually with reference initially to the value of
the Class B Shares upon establishment of the Systematic Withdrawal Program
and then as calculated at the fiscal year end. Redemptions on a qualifying
Systematic Withdrawal Program can be made at a rate of 1.00% monthly, 3.00%
quarterly, 6.00% semi-annually with reference to the applicable account
valuation amount. Amounts that exceed the 12.00% annual limit for
redemption, as described, may be subject to the Contingent Deferred Sales
Charge. To the extent that a shareholder exchanges Shares for Class B
Shares of other Federated Funds, the time for which the exchanged-for
Shares to be held will be added to the time for which exchanged-from Shares
were held for purposes of satisfying the 12 month holding requirement.
However, for purposes of meeting the $10,000 minimum account value
requirement, Class B Share account values will not be aggregated.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer

to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
TAX STATUS

THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the
Fund must, among other requirements:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from gains on the sale of
securities held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. Only a nominal portion of any
income dividend paid by the Fund is expected to be eligible for the

dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have
held Fund Shares.
TOTAL RETURN

The Fund's average annual total returns for Class A Shares for the one-year
and five-year periods ended February 28, 1997, and for the period from June
5, 1987 (date of initial public investment) to February 28, 1997, were
8.08%, 9.14%, and 12.37%, respectively.
The Fund's average annual total returns for Class B Shares for the one-year
period ended February 28, 1997, and for the period from October 12, 1994
(date of initial public investment) to February 28, 1997, were 7.62% and
13.27%, respectively.

The Fund's average annual total returns for Class C Shares for the fiscal
year ended February 28, 1997, and the period from April 30, 1993 (date of
initial public investment) to February 28, 1997, were 12.47% and 8.93%,
respectively.

The average annual total return for all classes of Shares of the Fund is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of Shares owned at the end of the period by the offering price per

Share at the end of the period. The number of Shares owned at the end of
the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the monthly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales
charge is deducted from the ending value of the investments based on the
lesser of the original purchase price or the offering price of Shares
redeemed.

Cumulative total return reflects the total performance over a specific
period of time. The Fund's cumulative total return for Class F Shares for
the period from June 1, 1996 (date of initial public investment) to
February 28, 1997 was 11.28%. This total return is representative of only 4
months of activity since the date of initial public investment.
YIELD

The Fund's yields for Class A Shares, Class B Shares, Class C Shares and
Class F Shares were 2.89%, 2.30%, 2.30%, and 3.05%, respectively, for the
thirty-day period ended February 28, 1997.

The yield for all classes of Shares of the Fund is determined by dividing
the net investment income per Share (as defined by the Securities and
Exchange Commission) earned by any class of Shares over a thirty-day period
by the maximum offering price per Share of any class of Shares on the last
day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by any class of Shares because of certain

adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any
class of Shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS

The Fund's performance of each class of Shares depends upon such variables
as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Fund's or a class of Shares' expenses; and
ovarious other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per Share fluctuate daily. Both net earnings
and offering price per Share are factors in the computation of yield and
total return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute

offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
oLIPPER ANALYTICAL SERVICES, INC., for example, makes comparative
calculations for one month, three month, one year, and five year
periods which assume the reinvestment of all capital gains
distributions and income dividends.
oDOW JONES INDUSTRIAL AVERAGE (`DJIA') represents share prices of
selected blue-chip industrial corporations as well as public utility
and transportation companies. The DJIA indicates daily changes in
the average price of stocks in any of its categories. It also
reports total sales for each group of industries. Because it
represents the top corporations of America, the DJIA index is a
leading economic indicator for the stock market as a whole.
oSTANDARD & POOR'S RATINGS GROUP DAILY STOCK PRICE INDEX OF 500
COMMON STOCKS, a composite index of common stocks in industry,
transportation, financial, and public utility companies, compares
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
oSTANDARD & POOR'S RATINGS GROUP UTILITY INDEX is an unmanaged index
of common stocks from forty different utilities. This index
indicates daily changes in the price of the stocks. The index also
provides figures for changes in price from the beginning of the year
to date, and for a twelve month period.
oDOW JONES UTILITY INDEX is an unmanaged index comprised of fifteen
utility stocks that tracks changes in price daily and over a six

month period. The index also provides the highs and lows for each of
the past five years.
oMORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an
investment in any class of Shares based on monthly reinvestment of
dividends over a specified period of time.
From time to time, the Fund may advertise the performance of any class of
Shares using charts, graphs and descriptions, compared to federally insured
bank products including certificates of deposit and time deposits and to
money market funds using the Lipper Analytical Services money market
instruments average.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on

these developments by Fund portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.

ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.

The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the equity sector, Federated Investors has more than 26 years'
experience. As of December 31, 1996, Federated managed 31 equity funds
totaling approximately $7.6 billion in assets across growth, value, equity
income, international, index and sector (i.e. utility) styles. Federated's
value-oriented management style combines quantitative and qualitative
analysis and features a structured, computer-assisted composite modeling
system that was developed in the 1970s.

J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*

Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.

BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities Corp.
FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended February 28, 1997, are
incorporated herein by reference to the Annual Report of the Fund dated
February 28, 1997 (File Nos. 33-13388 and 811-5114). A copy of this report
may be obtained without charge by contacting the Fund.

*Source: Investment Company Institute

APPENDIX

DESCRIPTION OF BOND RATINGS
A rating by a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are
general and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of fixed income
securities in which the Fund invests should be continuously reviewed and

that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase,
sell, or hold a security, because it does not take into account market
value or suitability for a particular investor. When a security has
received a rating from more than one service, each rating is evaluated
independently. Ratings are based on current information furnished by the
issuer or obtained by the rating services from other sources that they
consider reliable. Ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information, or for other
reasons.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt-edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may

be present which suggest a susceptibility to impairment sometime in the
future.
BAA-Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD AND POOR'S RATINGS GROUP LONG TERM DEBT RATING DEFINITIONS
AAA-Debt rated `AAA'' has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effect of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB-Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.

MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.

Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
oLeading market positions in well established industries.
oHigh rates of return on funds employed.
oConservative capitalization structure with moderate reliance on debt
and ample asset protection.
oBroad margins in earning coverage of fixed financial charges and
high internal cash generation.
oWell-established access to a range of financial markets and assured
sources of alternate liquidity.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1-This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:
(a) Financial Statements: Incorporated by reference to the
Annual Report to Shareholders dated February 28, 1997 as
filed on April 24, 1997. File Nos. 33-13388 and 811-5114.

(b) Exhibits:
(1) Copy of Amended and Restated Articles of Incorporation
of the Registrant (3.);
(i) Copy of Articles of Incorporation, as amended
(5.);
(2) Copy of By-Laws of the Registrant (1.);

(3) Not applicable;
(4) (i) .........Copies of Specimen Certificates for
Class A Shares, Class B Shares, Class C Shares and
Class F Shares of the Registrant; (12.)
(5) Conformed copy of Investment Advisory Contract of the
Registrant (5.);
(6) (i) Conformed Copy of Distributor's Contract of the
Registrant, through and including Exhibits A
and B; (9.)
(ii) Conformed Copy of Exhibit C to Distributor's
Contract of the Registrant adding Class B Shares
to the existing Distributor's Contract; (9.)
(iii)..........The Registrant incorporates the
conformed copy of the specimen Mutual Funds Sales
and Service ...Agreement; Mutual Funds Service
Agreement; and Plan Trustee/ Mutual Funds Service
Agreement .....from Item 24(b)(6) of the Cash Trust
Series II .....Registration Statement filed with the
Commission on July 24, 1995. (File Number 33-
38550 and 811-6269);
(iv) Conformed Copy of Exhibit D to Distributor's
contract of the Registrant; (12.)
(7) Not applicable;
(8) Conformed Copy of Custodian Contract of the
Registrant;(9.)
+ All exhibits have been filed electronically.

1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-2 filed April 16, 1987 (File Nos. 33-
13388 and 811-5114).
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed May 18, 1988 (File Nos. 33-13388
and 811-5114).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed February 21, 1990 (File Nos. 33-
13388 and 811-5114).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed May 24, 1995 (File Nos. 33-13388 and 811-5114).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 filed February 29, 1996 (File Nos. 33-13388 and 811-
5114).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed February 21, 1997 (File Nos. 33-13388 and 811-
5114).

(9) (i) Conformed Copy of the Agreement for Fund
Accounting Services, Administrative Services,
Transfer Agency Services, Shareholder
Recordkeeping, and Custody Services Procurement of
the Registrant; (11.)
(ii) The response and exhibits described in Item
24(b)(6) are hereby incorporated by reference;
(iii) Conformed Copy of Shareholder Services
Agreement of the Registrant; (9.)
(10) Not applicable;

(11) Conformed Copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Copy of Rule 12b-1 Plan of the Registrant, through
and including Exhibit A; (9.)
(ii) Copy of Exhibit B to the Rule 12b-1 Plan of the
Registrant adding Class B Shares to the existing
Rule 12b-1 Plan; (9.)
(iii) Copy of Exhibit C to the Rule 12b-1 Plan of
the Registrant; (12.)
(16) Copy of Schedule for Computation of Fund Performance
Data; (9.)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from Item 24(b)(18)
of the World Investment Series, Inc. Registration
Statement on Form N-1A, filed with the Commission on
January 26, 1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed Copy of Power of Attorney;(12.)

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

Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 4, 1997
Shares of capital stock
($0.001 per Share par value)

Class A Shares 65,356
Class B Shares 8,063
Class C Shares 4,211
Class F Shares 45,040

Item 27. Indemnification: (1)
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-2 filed April 16, 1987 (File Nos. 33-
13388 and 811-5114).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 filed May 24, 1995 (File Nos. 33-13388 and 811-5114).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 filed April 25, 1996 (File Nos. 33-13388 and 811-
5114).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 filed February 21, 1997 (File Nos. 33-13388 and 811-
5114).

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser,
see the section entitled "Fund Information-Management of the
Fund''in Part A. The affiliations with the Registrant of four of
the Trustees and one of the Officers of the investment adviser are
included in Part B of this Registration Statement under "Federated

Utility Fund, Inc. Management." The remaining Trustee of the
investment adviser, his position with the investment adviser, and,
in parentheses, his principal occupation is: Mark D. Olson
(Partner, Wilson, Halbrook & Bayard), 107 W. Market Street,
Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are: William D.
Dawson,III, Henry A. Frantzen, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Peter R. Anderson, Drew J.
Collins, Jonathan C. Conley, Deborah A. Cunningham, Mark E.
Durbiano, J. Alan Minteer, and Mary Jo Ochson, Senior Vice
Presidents; J. Scott Albrecht, Joseph M. Balestrino, Randall S.
Bauer, David F. Belton, Christine A. Bosio, David A. Briggs,
Kenneth J. Cody, Alexandre de Bethmann, Linda A. Duessel, Michael
J. Donnelly, Michael P. Donnelly, Kathleen M. Foody-Malus, Thomas
M. Franks; Edward C. Gonzales, James E. Grefenstette, Susan R.
Hill, Stephen A. Keen, Robert M. Kowit, Mark S. Kopinski, Jeff A.
Kozemchak, Marian R. Marinack, Sandra L. McInerney, Susan M. Nason,
Robert J. Ostrowski, Charles A. Ritter, Frank Semack, Aash M. Shah,
Scott B. Schermerhorn, William F. Stotz, Tracy P.Stouffer, Edward
J. Tiedge, Paige M. Wilhelm, Jolanta M. Wysocka, Vice Presidents;
Todd A. Abraham, Stafanie L. Bachhuber, Michael W. Casey, William
R. Jamison, Constantine Kartsonsas, Robert M. March, Joseph M.
Natoli, Keith J. Sabol, and Michael W. Sirianni, Assistant Vice
Presidents; Stephen A. Keen, Secretary; Thomas R. Donahue,
Treasurer and Assistant Secretary; Richard B. Fisher, Assistant
Secretary and Assistant Treasurer; Christine I. McGonigle,
Assistant Secretary. The business address of each of the Officers
of the investment adviser is Federated Investors Tower, Pittsburgh,

Pennsylvania 15222-3779. These individuals are also officers of a
majority of the investment advisers to the Funds listed in Part B
of this Registration Statement.

Item 29. Principal Underwriters:

(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund
for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty U.S. Government Money Market

Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds;
The Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities;
Trust for U.S. Treasury Obligations; Vision Group of Funds, Inc.; Wesmark
Funds; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)

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

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

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

Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp

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

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

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

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

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

Theodore Fadool, Jr. Senior Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

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

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

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

R. Edmond Connell, Jr. Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

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

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

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

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

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Steven A. La Versa Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

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

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

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

Jamie M. Teschner Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

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

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promugated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower

Pittsburgh, PA 15222-3779

Federated Shareholder Services
Company P.O. Box 8600
("Transfer Agent and Dividend Boston, MA 02266-8600
Disbursing Agent")

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

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

State Street Bank and Trust Co. P.O. Box 8600
("Custodian") Boston, MA 02266-8604

Item 31. Management Services: Not applicable.

Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED UTILITY FUND,
INC., certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Pittsburgh and Commonwealth of
Pennsylvania, on the 25th day of April, 1997.

FEDERATED UTILITY FUND, INC.

BY: /s/S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
April 25, 1997

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

NAME TITLE DATE

By:/s/S. Elliott Cohan
S. Elliott Cohan Attorney In Fact April 25, 1997
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

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

Richard B. Fisher* President and Director

John W. McGonigle* Executive Vice President
Secretary and Treasurer
(Principal Financial and
Accounting Officer)

Thomas J. Bigley* Director

John T. Conroy, Jr.* Director

William J. Copeland* Director

James E. Dowd* Director

Lawrence D. Ellis, M.D.* Director

Edward L. Flaherty, Jr.* Director

Peter E. Madden* Director

Gregor F. Meyer* Director

John E. Murray, Jr. Director

Wesley W. Posvar* Director

Marjorie P. Smuts* Director

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption `Financial
Highlights''in Post-Effective Amendment No. 19 to Registration Statement
(Form N-1A No. 33-13388) and the related Prospectuses of Federated Utility
Fund, Inc. dated April 30, 1997 and to the incorporation therein of our
report dated April 17, 1997 on the financial statements and financial
highlights of Federated Utility Fund, Inc. included in its Annual Report to
Shareholders for the year ended February 28, 1997.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
April 24, 1997

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<NUMBER> 001
<NAME> Federated Utility Fund, Inc.
Class A Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 1,282,324,624
<INVESTMENTS-AT-VALUE> 1,577,709,693
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<SHARES-COMMON-PRIOR> 63,578,481
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<ACCUMULATED-NET-GAINS> 34,183,824
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,243,893
<NET-ASSETS> 759,732,483
<DIVIDEND-INCOME> 62,836,807
<INTEREST-INCOME> 5,472,057
<OTHER-INCOME> 0
<EXPENSES-NET> 17,520,728
<NET-INVESTMENT-INCOME> 50,788,136
<REALIZED-GAINS-CURRENT> 78,584,029
<APPREC-INCREASE-CURRENT> 169,947,426
<NET-CHANGE-FROM-OPS> 299,319,591
<EQUALIZATION> (349,136)
<DISTRIBUTIONS-OF-INCOME> 30,916,720
<DISTRIBUTIONS-OF-GAINS> 43,588,717
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,938,897
<NUMBER-OF-SHARES-REDEEMED> 15,487,709
<SHARES-REINVESTED> 4,955,544
<NET-CHANGE-IN-ASSETS> 612,528,729
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27,724,936
<OVERDISTRIB-NII-PRIOR> (54,265)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,761,268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,413,943
<AVERAGE-NET-ASSETS> 1,395,371,521
<PER-SHARE-NAV-BEGIN> 12.790
<PER-SHARE-NII> 0.520
<PER-SHARE-GAIN-APPREC> 1.220
<PER-SHARE-DIVIDEND> 0.520
<PER-SHARE-DISTRIBUTIONS> 0.740
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.270
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated Utility Fund, Inc.
Class B Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 1,282,324,624
<INVESTMENTS-AT-VALUE> 1,577,709,693
<RECEIVABLES> 32,338,749
<ASSETS-OTHER> 143,092
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,610,191,534
<PAYABLE-FOR-SECURITIES> 21,095,255
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,367,013
<TOTAL-LIABILITIES> 28,462,268
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,249,037,886
<SHARES-COMMON-STOCK> 7,652,928
<SHARES-COMMON-PRIOR> 6,704,820
<ACCUMULATED-NII-CURRENT> 3,263,663
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,183,824
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,243,893
<NET-ASSETS> 101,618,747
<DIVIDEND-INCOME> 62,836,807
<INTEREST-INCOME> 5,472,057
<OTHER-INCOME> 0
<EXPENSES-NET> 17,520,728
<NET-INVESTMENT-INCOME> 50,788,136
<REALIZED-GAINS-CURRENT> 78,584,029
<APPREC-INCREASE-CURRENT> 169,947,426
<NET-CHANGE-FROM-OPS> 299,319,591
<EQUALIZATION> (349,136)
<DISTRIBUTIONS-OF-INCOME> 2,917,172
<DISTRIBUTIONS-OF-GAINS> 5,277,792
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,075,501
<NUMBER-OF-SHARES-REDEEMED> 1,666,470
<SHARES-REINVESTED> 539,077
<NET-CHANGE-IN-ASSETS> 612,528,729
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 27,724,936
<OVERDISTRIB-NII-PRIOR> (54,265)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,761,268
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,413,943
<AVERAGE-NET-ASSETS> 1,395,371,521
<PER-SHARE-NAV-BEGIN> 12.770
<PER-SHARE-NII> 0.440
<PER-SHARE-GAIN-APPREC> 1.210
<PER-SHARE-DIVIDEND> 0.400
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<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Federated Utility Fund, Inc.
Class C Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 1,282,324,624
<INVESTMENTS-AT-VALUE> 1,577,709,693
<RECEIVABLES> 32,338,749
<ASSETS-OTHER> 143,092
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 21,095,255
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<ACCUMULATED-NET-GAINS> 34,183,824
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 58,195,788
<DIVIDEND-INCOME> 62,836,807
<INTEREST-INCOME> 5,472,057
<OTHER-INCOME> 0
<EXPENSES-NET> 17,520,728
<NET-INVESTMENT-INCOME> 50,788,136
<REALIZED-GAINS-CURRENT> 78,584,029
<APPREC-INCREASE-CURRENT> 169,947,426
<NET-CHANGE-FROM-OPS> 299,319,591
<EQUALIZATION> (349,136)
<DISTRIBUTIONS-OF-INCOME> 1,924,467
<DISTRIBUTIONS-OF-GAINS> 3,542,933
<DISTRIBUTIONS-OTHER> 0
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<EXPENSE-RATIO> 1.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> Federated Utility Fund, Inc.
Class F Shares

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 1,282,324,624
<INVESTMENTS-AT-VALUE> 1,577,709,693
<RECEIVABLES> 32,338,749
<ASSETS-OTHER> 143,092
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<OTHER-ITEMS-LIABILITIES> 7,367,013
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<PAID-IN-CAPITAL-COMMON> 1,249,037,886
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<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,263,663
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,183,824
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,243,893
<NET-ASSETS> 662,182,248
<DIVIDEND-INCOME> 62,836,807
<INTEREST-INCOME> 5,472,057
<OTHER-INCOME> 0
<EXPENSES-NET> 17,520,728
<NET-INVESTMENT-INCOME> 50,788,136
<REALIZED-GAINS-CURRENT> 78,584,029
<APPREC-INCREASE-CURRENT> 169,947,426
<NET-CHANGE-FROM-OPS> 299,319,591
<EQUALIZATION> (349,136)
<DISTRIBUTIONS-OF-INCOME> 19,257,898
<DISTRIBUTIONS-OF-GAINS> 18,303,689
<DISTRIBUTIONS-OTHER> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-END> 13.270
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>