[Graphic]
Federated Utility Fund, Inc.
10TH SEMI-ANNUAL REPORT
AUGUST 31, 1997
ESTABLISHED 1988
President's Message
[Graphic]
Dear Fellow Shareholder:
Federated Utility Fund, Inc. was established in 1988, and I am pleased to
present the 10th Semi-Annual Report for the fund. The fund's assets totaled
$1.4 billion as of August 31, 1997, serving over 94,000 shareholders.
This report covers the six-month period from March 1, 1997, through
August 31, 1997. Linda Duessel, Vice President, Passport Research,
Ltd., and Steven J. Lehman, Vice President, Passport Research, Ltd.,
discuss the current utility industry environment and the fund's
performance, as well as its strategy and holdings. Following their
interview is a complete listing of the fund's 42 holdings in good
dividend-paying utility stocks and 27 convertible and other
securities, along with the fund's financial statements.
Over the six-month reporting period, the fund's diversified portfolio
of good dividend-paying utility stocks continued to reward
shareholders with attractive dividends and long-term performance. The
performance for the past six months is listed below.*
TOTAL RETURN INCOME SHARE PRICE INCREASE
Class A Shares 4.31% $0.20 $13.27 to $13.64=2.7%
Class B Shares 3.83% $0.15 $13.28 to $13.64=2.6%
Class C Shares 3.83% $0.15 $13.28 to $13.64=2.6%
Class F Shares 4.25% $0.20 $13.27 to $13.63=2.6%
The U.S. economy continues to be strong, and inflation fears low. The
Dow Jones Industrial Average is reaching record levels, and utility
stocks have not been caught up in any buying "exuberance" -- rational
or irrational. However, we believe utility stocks can offer very
attractive yields -- almost three times the Standard & Poor's 500**
Index stock yield. Utility stocks have strong earnings and offer good
dividends.
* Performance quoted represents past performance, is based on net
asset value, and is not indicative of future results. Investment
return and principal value will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original
cost. Total returns for the period based on offering price for Class
A, B, C, and F Shares were -1.41%, -1.72%, 2.84%, and 2.26%,
respectively. As of 8/31/97, the Class A Shares' average annual
one-year, five-year, and since inception (5/27/88) total returns were
12.90%, 9.40%, and 12.17%, respectively. Class B, C, and F Shares'
average annual one-year total returns were 12.77%, 17.54%, and 17.23%,
respectively, and annualized total returns since inception (5/27/88)
were 12.35%, 8.80%, and 12.64%, respectively.
** Standard & Poor's 500 Index is an unmanaged index of common stocks
in industry, transportation, and financial and public utility
companies.
Investments cannot be made in an index.
In our stock selections for the fund, we emphasize the defensive
nature of electric and natural gas company shares. Federated Utility
Fund, Inc. is well disciplined for the conservative investor. I urge
you to review the fund's holdings, and you will see the fund owns
strong utility companies in the U.S. and around the world.* In fact,
many international stock funds in 1996-1997 have had their performance
enhanced by owning utility stocks from Latin American, the
Asian-Pacific region, and European countries.
Thank you for participating in the income and growth opportunities of
the many vital utility services represented in the fund's portfolio.
Remember, reinvesting your earnings is a convenient way to build the
value of your account and help your shares increase through the
benefit of monthly compounding of earnings.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
October 15, 1997
* Foreign investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in
auditing and other financial standards.
Investment Review
[Graphic]
Linda A. Duessel
Vice President
Passport Research, Ltd.
[Graphic]
Steven J. Lehman
Vice President
Passport Research, Ltd.
[Graphic]
WHAT IS YOUR REVIEW OF THE UTILITY MARKET-- ITS ELECTRIC, NATURAL GAS
AND TELEPHONE SECTORS--DURING THE FIRST SIX MONTHS OF THE FUND'S
FISCAL YEAR?
The utility market continued to face two historic headwinds: an
extraordinarily strong stock market and uncertainty over the effects
of deregulation. The sector that has already undergone significant
deregulation over the past decade--natural gas--performed well,
returning 10.45%. Electrics and telephones, which are still in the
early stages of industry restructuring, lagged with electrics up 3.23%
and telecommunications up 1.16%.
[Graphic]
FEDERATED UTILITY FUND, INC. HAS CONTINUALLY OUTPERFORMED THE MARKET
OVER THE LONG-TERM AS MEASURED BY THE STANDARD & POOR'S UTILITY INDEX
(THE "S&P UTILITY INDEX").* DID THE FUND CONTINUE THAT TREND VERSUS
THAT INDEX AND THE RELATIVELY NEW STANDARD & POOR'S COMMUNICATIONS
INDEX (THE "S&P COMMUNICATIONS INDEX")?*
Yes. Federated Utility Fund, Inc. Class A Shares returned 4.31%, based on
net asset value,** compared to a return of 3.23% for the S&P Utility Index
and 1.16% for the S&P Communications Index. With total returns of 3.83%,
3.83% and 4.25%, based on net asset value, the fund's Class B, C, and F
Shares also outperformed both indexes.**
* The S&P Utility Index is an unmanaged index comprising electric and
natural gas utilities that track daily changes in the price of stocks.
The S&P Communications Index, created on 7/1/96, is an unmanaged index
comprising telephone and other communications-oriented utilities that
track daily changes in the price of stocks. Before 7/1/96, telephone
utilities were included in the S&P Utility Index. Investments cannot
be made in an index.
** Performance quoted represents past performance, and is not
indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the
period based on offering price for Class A, B, C, and F Shares were
- -1.41%, -1.72%, 2.84%, and 2.26%, respectively. As of 8/31/97, the
Class A Shares' average annual one-year, five-year, and since
inception (5/27/88) total returns were 12.90%, 9.40%, and 12.17%,
respectively. Class B, C, and F Shares' average annual one-year total
returns were 12.77%, 17.54%, and 17.23%, respectively, and annualized
total returns since inception (5/27/88) were 12.35%, 8.80%, and
12.64%, respectively.
[Graphic]
DID MERGER ACTIVITY POSITIVELY IMPACT ANY HOLDINGS DURING THE REPORTING
PERIOD?
Not immediately, although we expect significant long-term benefits.
Duke Power, our largest holding, merged in June with PanEnergy to
become DUKE ENERGY. This merger combines one of the top electric
utilities in an attractive region of the country with a top supplier
of natural gas. We expect Duke Energy to be a winner as the electric
and gas businesses converge into multi-fuel energy suppliers
nationally. TEXAS UTILITIES acquired Ensearch to provide gas and
electric services in Texas. PACIFICORP proposed a merger with the
Energy Group of England. Although this merger is delayed pending
regulatory approval, the company would have a competitive advantage in
providing low-cost power on three continents.
[Graphic]
HOW WERE THE FUND'S ASSETS ALLOCATED ON AUGUST 31, 1997?
The fund's assets were allocated as follows:
PERCENTAGE NUMBER OF
SECTOR OF PORTFOLIO ISSUES
Electrics 31.34% 15
Telecommunications 19.07% 9
Natural Gas 12.68% 9
Non-U.S. Utilities 11.46% 10
Non-Utility 24.31% 24
[Graphic]
WHAT STRATEGIES ARE GUIDING YOUR SECURITY SELECTION?
Our security selection follows three basic themes:
1) High-quality domestic and international utilities with superior dividend
growth prospects;
2) Utilities with astute managers who can capitalize on the changes in
the industry in the U.S. and around the world; and
3) Diversification of the fund's risk through holdings in non-utility
companies and international utilities.
[Graphic]
WHAT WERE THE TOP FIVE HOLDINGS OF FEDERATED UTILITY FUND, INC. AS OF AUGUST
31, 1997?
Our top holdings were:
COMPANY SECTOR VALUE
Sprint Corp. Telecommunications $46.9 million
Duke Energy Electric $46.9 million
FPL Group Electric $45.1 million
CMS Energy Electric $44.9 million
MCI Communications Telecommunications $44.4 million
[Graphic]
AS 1997 DRAWS TO A CLOSE, DO THE SIGNS CONTINUE TO POINT TO A
FAVORABLE ENVIRONMENT FOR UTILITIES?
Yes. We remain enthusiastic about the prospects for our shareholders.
All three utility subsectors--electric, gas, and telephone--appear
inexpensive compared to the broad market. For example, the relative
dividend yield on electric utilities is at its highest level in 20
years. Furthermore, the defensive characteristics of utilities should
come back in favor when investors again recognize the value of high
and reliable dividend yields, steady earnings and moderate growth.
Additionally, positive developments are occurring in the industry
around the world. Companies continue to diversify into other utility
sectors and to other parts of the world to increase their profit
growth. And the convergence of the electric and gas industries
continues, as companies merge to become regional, national, and
eventually international, providers of integrated energy services. We
continue to position Federated Utility Fund, Inc. to benefit from
these trends in the U.S. and around the world.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED UTILITY FUND,
INC.
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $10,000 IN THE CLASS A SHARES
OF FEDERATED UTILITY FUND, INC. ON 5/27/88, REINVESTED YOUR DIVIDENDS
AND CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE
WORTH $28,997 ON 8/31/97. YOU WOULD HAVE EARNED A 12.17%* AVERAGE
ANNUAL TOTAL RETURN FOR THE 9-YEAR INVESTMENT LIFE SPAN -- QUITE
ATTRACTIVE FOR A UTILITY STOCK FUND, ESPECIALLY DURING A TIME WHEN THE
ECONOMIC MARKETS WENT THROUGH SEVERAL CYCLES.
One key to investing wisely is to reinvest all distributions in fund
shares. This increases the number of shares on which you can earn
future dividends, and you gain the benefit of compounding.
As of 9/30/97, the Class A Shares' average annual one-year, five-year,
and since inception (5/27/88) total returns were 16.57%, 10.14%, and
12.57%, respectively. Class B Shares' average annual one-year, and
since inception (9/28/94) total returns were 16.66% and 13.88%,
respectively. Class C Shares' average annual one-year, and since
inception (4/27/93) total returns were 21.41% and 9.67%, respectively.
The Class F Shares' average annual one-year and since inception
(6/1/96) total returns were 21.20% and 15.49%, respectively.
[Graphic] - See Appendix (A)
* Total return represents the change in the value of an investment in
Class A Shares after reinvesting all income and capital gains, and
takes into account the 5.50% sales charge applicable to an initial
investment in Class A Shares.
Data quoted represents past performance and does not guarantee future
results. Investment return and principal value will fluctuate so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
FEDERATED UTILITY FUND, INC.
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 9 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $17,233.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Utility Fund, Inc. on 5/27/88, reinvested your dividends and
capital gains, and didn't redeem any shares, you would have invested
only $10,000, but your account would have reached a total value of
$17,233* by 8/31/97. You would have earned an average annual total
return of 11.08%.
A practical investment plan helps you pursue long-term performance
from utility securities. Through systematic investing, you buy shares
on a regular basis and reinvest all earnings. This investment plan
works for you even if you invest only $1,000 annually. You can take it
one step at a time.
Put time, money, and compounding to work.
[Graphic] - See Appendix (B)
* This chart assumes that the subsequent annual investments are made
on the last day of each anniversary month. No method of investing can
guarantee a profit or protect against loss in down markets. However,
by investing regularly over time and buying shares at various prices,
investors can purchase more shares at lower prices. All accumulated
shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of
changing price levels, the investor should consider whether or not to
continue purchases through periods of low price levels.
FEDERATED UTILITY FUND, INC.
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--82.1%
CONSUMER NON-DURABLES--2.0%
587,100 Philip Morris Cos., Inc. $ 25,612,238
106,700 RJR Nabisco Holdings Corp. 3,714,494
Total 29,326,732
ELECTRIC UTILITIES: CENTRAL--9.5%
1,250,100 CMS Energy Corp. 44,925,469
588,400 Cinergy Corp. 19,453,975
1,561,100 DPL, Inc. 36,978,556
883,700 NIPSCO Industries, Inc. 36,066,006
Total 137,424,006
ELECTRIC UTILITIES: EAST--2.4%
1,091,700 DQE, Inc. 34,661,475
31,800 New York State Electric and Gas Corp. 775,125
Total 35,436,600
ELECTRIC UTILITIES: SOUTH--12.7%
968,435 Duke Energy 46,908,570
969,800 FPL Group, Inc. 45,095,700
1,363,400 Southern Co. 28,716,613
1,385,900 TECO Energy, Inc. 33,348,219
834,200 Texas Utilities Co. 29,092,725
Total 183,161,827
ELECTRIC UTILITIES: WEST--6.0%
773,700 P G & E Corp. 17,940,169
1,516,600 Pacificorp 31,469,450
1,166,900 Pinnacle West Capital Corp. 37,705,456
Total 87,115,075
</TABLE>
FEDERATED UTILITY FUND, INC.
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
ENERGY MINERALS--3.0%
443,200 Atlantic Richfield Co. $ 33,240,000
89,200 Texaco, Inc. 10,280,300
Total 43,520,300
FINANCE--7.5%
136,000 Avalon Properties, Inc. 3,816,500
460,000 Beacon Properties Corp. 16,560,000
585,700 Boston Properties, Inc. 17,461,181
290,200 Equity Residential Properties Trust 14,129,113
979,100 Meditrust, REIT 39,102,806
165,000 Price REIT, Inc. 6,259,688
496,100 Security Capital Pacific Trust 10,821,181
357,200 Security Capital Pacific Trust, Rights 5,581
Total 108,156,050
MAJOR U.S. TELECOMMUNICATIONS--17.6%
409,700 Ameritech Corp. 25,683,069
780,400 BellSouth Corp. 34,337,600
822,600 GTE Corp. 36,657,113
1,558,200 MCI Communications Corp. 44,408,700
642,500 SBC Communications, Inc. 34,935,938
998,900 Sprint Corp. 46,948,300
874,700 U.S. West, Inc. 31,325,194
Total 254,295,914
NATURAL GAS DISTRIBUTION--5.9%
306,000 Consolidated Natural Gas Co. 18,073,126
1,123,500 MCN Corp. 34,477,406
49,600 New Jersey Resources Corp. 1,590,300
977,300 Pacific Enterprises 32,189,819
Total 86,330,651
</TABLE>
FEDERATED UTILITY FUND, INC.
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
NON-U.S. UTILITIES--10.9%
879,960 (a)Electricidade de Portugal SA $ 13,733,452
1,043,600 Empresa Nacional Electricidad SA, ADR 23,220,100
7,000,000 Hong Kong and China Gas Co. Ltd. 13,007,288
540,700 Korea Electric Power Corp., ADR 8,820,169
859,510 National Power Co. PLC, ADR 31,372,115
1,662 Nippon Telegraph & Telephone Corp. 15,549,429
6,223,100 Telecom Italia S.P.A. 21,957,866
133,600 Telecomunicacoes Brasileiras SA, ADR 15,764,800
35,500 Viag AG 14,741,675
Total 158,166,894
OIL/GAS TRANSMISSION--4.3%
715,876 Enron Corp. 27,605,969
367,300 Sonat, Inc. 18,296,132
336,900 Williams Cos., Inc. (The) 15,686,907
Total 61,589,008
WATER SUPPLY--0.3%
196,600 American Water Works Co., Inc. 4,079,451
TOTAL COMMON STOCKS (IDENTIFIED COST $965,842,047) 1,188,602,508
CORPORATE BONDS--3.2%
HEALTH CARE--2.8%
$ 16,490,000 Alza Corp., Conv. Bond, 5.00%, 5/1/2006 16,749,223
37,800,000 (b)Roche Holdings, Inc., LYONS, 5/6/2012 16,159,500
6,200,000 Tenet Healthcare Corp., Conv. Bond, 6.00%, 12/1/2005 7,471,000
Total 40,379,723
</TABLE>
FEDERATED UTILITY FUND, INC.
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
NON-U.S. UTILITIES--0.4%
$ 6,270,000 Korea Electric Power Corp., Conv. Bond, 5.00%, 8/1/2001 $ 6,226,862
TOTAL CORPORATE BONDS (IDENTIFIED COST $45,122,063) 46,606,585
CONVERTIBLE PREFERRED STOCKS--12.7%
BASIC INDUSTRY--2.7%
161,900 Amcor Ltd., PRIDES, 7.25% 8,418,800
914,300 Coeur d'Alene Mines Corp., Conv. Pfd., 7.00% 16,171,681
386,900 Merrill Lynch & Co., Inc., STRYPES, Series IML, 6.25% 14,460,388
Total 39,050,869
ENERGY MINERALS--0.6%
133,600 (b)Tosco Corp., Conv. Pfd., 5.75% 8,213,327
FINANCE--0.9%
466,100 National Australia Bank, Ltd., Melbourne,
Exchangeable Capital Unit, $1.97 13,312,981
HEALTH CARE--1.0%
168,228 Aetna, Inc., Conv. Pfd., $4.76 14,804,064
OIL/GAS TRANSMISSION--2.4%
70,100 MCN Corp., PRIDES, $8.00 3,741,588
275,000 Williams Cos., Inc. (The), Conv. Pfd., $3.50 30,186,200
Total 33,927,788
SERVICES--1.7%
504,100 Browning-Ferris Industries, Inc., ACES, $2.58 16,792,831
130,000 (b)CalEnergy Co., Inc., Conv. Pfd. 6,507,020
107,600 Hollinger International Publishing, Inc., Conv. Pfd., $.95 1,284,475
Total 24,584,326
TECHNOLOGY--2.1%
342,500 Microsoft Corp., Cumulative Conv. Pfd., Series A, $2.20 29,797,500
</TABLE>
FEDERATED UTILITY FUND, INC.
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS--CONTINUED
TELECOMMUNICATIONS--1.3%
63,300 Airtouch Communications, Inc., Conv. Pfd., Series C, $2.13 $ 3,461,719
285,900 Salomon, Inc., DECS, Series CSN, $3.48 15,903,188
Total 19,364,907
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED COST $163,799,158) 183,055,762
(C)REPURCHASE AGREEMENTS--1.1%
$ 16,395,000 BT Securities Corp., 5.58%, dated 8/29/1997, due 9/2/1997
(AT AMORTIZED COST) 16,395,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,191,158,268)(D) $ 1,434,659,855
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on
resale under federal securities laws. At August 31, 1997, these
securities amounted to $30,879,847 which represents 2.1% of net
assets.
(c) The repurchase agreement is fully collateralized by U.S.
government and/or agency obligations based on market prices at the
date of the portfolio. The investment in the repurchase agreement is
through participation in a joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to
$1,191,277,858. The net unrealized appreciation of investments on a
federal tax basis amounts to $243,381,997 which is comprised of
$262,640,945 appreciation and $19,258,948 depreciation at August 31,
1997.
Note: The categories of investments are shown as a percentage of net assets
($1,447,217,101) at August 31, 1997.
The following acronyms are used throughout this portfolio:
ACES --Adjustable Convertible Extendable Securities ADR --American
Depository Receipt DECS --Dividend Enhanced Convertible Stock LYONs
- --Liquid Yield Option Notes PLC --Public Limited Company PRIDES
- --Preferred Redeemable Increased Dividend Equity Securities REIT
- --Real Estate Investment Trust SPA --Standby Purchase Agreement
STRYPES --Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$1,191,158,268, and tax cost $1,191,277,858) $ 1,434,659,855
Cash 85,400
Cash denominated in foreign currencies (at identified 39,985
cost $42,269)
Income receivable 4,952,567
Receivable for investments sold 17,275,203
Receivable for shares sold 359,366
Total assets 1,457,372,376
LIABILITIES:
Payable for investments purchased $ 7,355,196
Payable for shares redeemed 1,321,535
Income distribution payable 866,070
Accrued expenses 612,474
Total liabilities 10,155,275
Net Assets for 106,132,158 shares outstanding $ 1,447,217,101
NET ASSETS CONSIST OF:
Paid in capital $ 1,075,023,760
Net unrealized appreciation of investments and
translation of assets and liabilities
in foreign currency 243,499,199
Accumulated net realized gain on investments and foreign 124,262,227
currency transactions
Undistributed net investment income 4,431,915
Total Net Assets $ 1,447,217,101
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($704,793,530 / 51,683,549 $13.64
shares outstanding)
Offering Price Per Share (100/94.50 of $13.64)* $14.43
Redemption Proceeds Per Share $13.64
CLASS B SHARES:
Net Asset Value Per Share ($100,334,953 / 7,354,077 $13.64
shares outstanding)
Offering Price Per Share $13.64
Redemption Proceeds Per Share (94.50/100 of $13.64)** $12.89
CLASS C SHARES:
Net Asset Value Per Share ($52,102,768 / 3,819,405 $13.64
shares outstanding)
Offering Price Per Share $13.64
Redemption Proceeds Per Share (99.00/100 of $13.64)** $13.50
CLASS F SHARES:
Net Asset Value Per Share ($589,985,850 / 43,275,127 $13.63
shares outstanding)
Offering Price Per Share (100/99.00 of $13.63)*** $13.77
Redemption Proceeds Per Share (99.00/100 of $13.63)** $13.49
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
*** See "Investing in Class F Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $440,229) $ 30,258,368
Interest 1,755,551
Total income 32,013,919
EXPENSES:
Investment advisory fee $ 5,704,079
Administrative personnel and services fee 574,211
Custodian fees 74,571
Transfer, and dividend disbursing agent fees and 990,061
expenses
Directors'/Trustees' fees 7,826
Auditing fees 11,160
Legal fees 7,554
Portfolio accounting fees 79,201
Distribution services fee--Class B Shares 382,831
Distribution services fee--Class C Shares 208,311
Shareholder services fee--Class A Shares 918,894
Shareholder services fee--Class B Shares 127,610
Shareholder services fee--Class C Shares 69,437
Shareholder services fee--Class F Shares 785,491
Printing and postage 130,236
Insurance premiums 7,258
Taxes 87,376
Miscellaneous 9,860
Total expenses 10,175,967
Waivers--
Waiver of investment advisory fee $ (805,036)
Waiver of shareholder services fee--Class A Shares (22,053)
Waiver of shareholder services fee--Class F Shares (94,259)
Total waivers (921,348)
Net expenses 9,254,619
Net investment income 22,759,300
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 91,067,349
transactions
Net change in unrealized appreciation of investments and
translation of assets
and liabilities in foreign currency (51,744,694)
Net realized and unrealized gain on investments and 39,322,655
foreign currency
Change in net assets resulting from operations $ 62,081,955
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 22,759,300 $ 50,788,136
Net realized gain on investments and foreign
currency transactions ($91,067,349 and
$77,187,780, respectively, as computed for federal 91,067,349 78,584,029
tax purposes)
Net change in unrealized appreciation/depreciation
of investments and translation of
assets and liabilities in foreign currency (51,744,694) 76,927,979
Change in net assets resulting from operations 62,081,955 206,300,144
NET EQUALIZATION CREDITS (DEBITS)-- (76,937) (349,136)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (10,648,069) (30,916,720)
Class B Shares (1,092,963) (2,917,172)
Class C Shares (591,437) (1,924,467)
Class F Shares (9,181,642) (19,257,898)
Distributions from net realized gains on
investments and foreign currency transactions
Class A Shares -- (43,588,717)
Class B Shares -- (5,277,792)
Class C Shares -- (3,542,933)
Class F Shares -- (18,303,689)
Change in net assets resulting from (21,514,111) (125,729,388)
distributions to shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 43,157,541 115,531,852
Proceeds from shares issued in connection with the -- 730,686,278(a)
acquisition
Net asset value of shares issued to shareholders 16,214,033 101,834,448
in payment of distributions declared
Cost of shares redeemed (234,374,646) (415,745,469)
Change in net assets resulting from share (175,003,072) 532,307,109
transactions
Change in net assets (134,512,165) 612,528,729
NET ASSETS:
Beginning of period 1,581,729,266 969,200,537
End of period $ 1,447,217,101 $ 1,581,729,266
</TABLE>
(a) Includes $93,019,447 of unrealized appreciation.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.27 $12.79 $10.98 $12.24 $12.29 $11.03
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.52 0.48 0.55 0.60 0.58
Net realized and unrealized gain (loss) on
investments and foreign currency 0.36 1.22 1.82 (0.69) -- 1.44
Total from investment operations 0.57 1.74 2.30 (0.14) 0.60 2.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.20) (0.52) (0.48) (0.66) (0.61) (0.66)
Distributions from net realized gain on
investments and foreign currency transactions -- (0.74) -- (0.12) (0.04) (0.10)
Distributions in excess of net investment -- -- (0.01) -- -- --
income(a)
Tax return of capital distribution -- -- -- (0.34) -- --
Total distributions (0.20) (1.26) (0.49) (1.12) (0.65) (0.76)
NET ASSET VALUE, END OF PERIOD $13.64 $13.27 $12.79 $10.98 $12.24 $12.29
TOTAL RETURN(B) 4.31% 14.34% 21.47% (0.98%) 4.93% 19.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.15%* 1.15% 1.14% 1.10% 1.12% 1.04%
Net investment income 3.06%* 3.52% 4.09% 4.95% 4.81% 5.98%
Expense waiver(c) 0.11%* 0.12% 0.15% 0.21% 0.17% 0.01%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $704,794 $759,732 $816,687 $742,274 $877,513 $739,511
Average commission rate paid(d) $0.0096 $0.0003 -- -- -- --
Portfolio turnover 39% 44% 76% 55% 24% 18%
</TABLE>
* Computed on an annualized basis.
(a) 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.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided
by total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28 OR 29,
1997 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.28 $12.77 $10.98 $10.92
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.16 0.44 0.43 0.22
Net realized and unrealized gain (loss) on
investments and foreign currency 0.35 1.21 1.77 (0.04)
Total from investment operations 0.51 1.65 2.20 0.18
LESS DISTRIBUTIONS
Distributions from net investment income (0.15) (0.40) (0.41) (0.08)
Distributions from net realized gain on investments
and foreign currency transactions -- (0.74) -- --
Tax return of capital distributions -- -- -- (0.04)
Total distributions (0.15) (1.14) (0.41) (0.12)
NET ASSET VALUE, END OF PERIOD $13.64 $13.28 $12.77 $10.98
TOTAL RETURN(B) 3.83% 13.60% 20.45% 2.16%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.90%* 1.90% 1.90% 1.87%*
Net investment income 2.31%* 2.81% 3.19% 4.53%*
Expense waiver(c) 0.11%* 0.12% 0.14% 0.25%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $100,335 $101,619 $85,650 $18,780
Average commission rate paid(d) $0.0096 $0.0003 -- --
Portfolio turnover 39% 44% 76% 55%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 12, 1994 (date of
initial public investment) to February 28, 1995.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided
by total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28 OR 29,
1997 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.28 $12.77 $10.98 $12.23 $12.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.17 0.42 0.39 0.42 0.48
Net realized and unrealized gain (loss) on
investments and foreign currency 0.34 1.23 1.80 (0.64) (0.07)
Total from investment operations 0.51 1.65 2.19 (0.22) 0.41
LESS DISTRIBUTIONS
Distributions from net investment income (0.15) (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 distributions -- -- -- (0.30) --
Total distributions (0.15) (1.14) (0.40) (1.03) (0.45)
NET ASSET VALUE, END OF PERIOD $13.64 $13.28 $12.77 $10.98 $12.23
TOTAL RETURN(C) 3.83% 13.58% 20.43% (1.66%) 3.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.90%* 1.90% 1.87% 1.86% 1.87%*
Net investment income 2.31%* 2.77% 3.35% 4.19% 4.02%*
Expense waiver(d) 0.11%* 0.12% 0.17% 0.21% 0.17%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $52,103 $58,196 $66,864 $58,800 $64,409
Average commission rate paid(e) $0.0096 $0.0003 -- -- --
Portfolio turnover 39% 44% 76% 55% 24%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 30, 1993 (date of
initial public investment) to February 28, 1994.
(b) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital
for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(e) Represents total commissions paid on portfolio securities divided
by total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 28,
1997 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.27 $12.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.22 0.42
Net realized and unrealized gain (loss) on investments
and foreign currency 0.34 1.20
Total from investment operations 0.56 1.62
LESS DISTRIBUTIONS
Distributions from net investment income (0.20) (0.36)
Distributions from net realized gain on investments and foreign
currency transactions -- (0.36)
Total distributions (0.20) (0.72)
NET ASSET VALUE, END OF PERIOD $13.63 $13.27
TOTAL RETURN(B) 4.25% 13.39%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%* 1.12%*
Net investment income 3.08%* 3.79%*
Expense waiver(c) 0.14%* 0.15%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $589,986 $662,182
Average commission rate paid(d) $0.0096 $0.0003
Portfolio turnover 39% 44%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 1, 1996 (date of
initial public investment) to February 28, 1997.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided
by total portfolio shares purchased or sold on which commissions were
charged. This disclosure is required for fiscal years beginning on or
after September 1, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Utility Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund offers
four classes of shares: Class A Shares, Class B Shares, Class C
Shares, and Class F Shares. The primary investment objective of the
Fund is current income and long-term growth of income.
On June 1, 1996, the Fund acquired all the net assets of Fortress
Utility Fund, Inc. ("Acquired Fund") pursuant to a plan of
reorganization approved by the Acquired Fund's shareholders. The
acquisition was accomplished by a tax-free exchange of 59,078,573
shares of the Fund (valued at $730,686,278) for the 52,727,413 shares
of the Acquired Fund outstanding on June 1, 1996. The Acquired Fund's
net assets of $730,686,278, which consisted of $637,666,831 of Paid in
Capital and $93,017,447 of Unrealized Appreciation, at that date were
combined with those of the Fund. The aggregate net assets of the Fund
and the Acquired Fund immediately before the acquisition were
$925,114,464 and $730,686,278, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS-- Listed corporate bonds, other fixed income
securities, unlisted securities and private placement securities are
generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Listed equity securities
are valued at the last sale price reported on a national securities
exchange. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value. The
Fund's restricted securities are valued at a price provided by dealers
in the secondary market or, if no market prices are available, at the
fair value as determined by the Fund's pricing committee. With respect
to valuation of foreign securities, trading in foreign cities may be
completed at times which vary from the closing of the New York Stock
Exchange. Therefore, foreign securities are valued at the latest
closing price on the exchange on which they are traded prior to the
closing of the New York Stock Exchange. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the foreign
exchange rate in effect at noon, eastern time, on the day the value of
the foreign security is determined.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under
repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value
of each repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which
are deemed by the Fund's adviser to be creditworthy pursuant to the
guidelines and/or standards reviewed or established by the Board of
Directors (the "Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
FEDERAL TAXES-- It is the Fund's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary. At February
28, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $619,107, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal tax. Pursuant to the
Code, such capital loss carryforward will expire in 1998.
Withholding taxes on foreign interest and dividends have been provided
for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
EQUALIZATION-- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales
and costs of redemptions of Fund shares (equivalent, on a per share
basis, to the amount of undistributed net investment income on the
date of the transaction) is credited or charged to undistributed net
investment income. As a result, undistributed net investment income
per share is unaffected by sales or redemptions of Fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records
when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and
begin earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS-- The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire
exposure to foreign currencies; whereas, contracts to sell are used to
hedge the Fund's securities against currency fluctuations. Risks may
arise upon entering these transactions from the potential inability of
counterparts to meet the terms of their commitments and from
unanticipated movements in security prices or foreign exchange rates.
The foreign currency transactions are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded
for financial statement purpose as unrealized until the settlement
date. At August 31, 1997, the Fund had no outstanding foreign currency
commitments.
FOREIGN CURRENCY TRANSLATION-- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on
the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the
respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are
adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments.
Reported net realized foreign exchange gains or losses arise from
sales of portfolio securities, sales and maturities of short-term
securities, sales of FCs, currency gains or losses realized between
the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of
assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES-- Restricted securities are securities that may
only be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer
of restricted securities has agreed to register such securities for
resale, at the issuer's expense either upon demand by the Fund or in
connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may
be determined to be liquid under criteria established by the
Directors. The Fund will not incur any registration costs upon such
resales. The Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices
are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at August 31,
1997, is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
CalEnergy Co., Inc. 2/20/1997 $ 6,500,000
Roche Holdings, Inc. 4/29/1997 15,055,256
Tosco Corp. 12/10/1996 - 12/20/1996 6,671,788
USE OF ESTIMATES-- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At August 31, 1997, par value shares ($0.001 per share) authorized
were as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 250,000,000
Class B Shares 250,000,000
Class C Shares 250,000,000
Class F Shares 250,000,000
Total 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,636,486 $ 22,175,751 3,938,897 $ 50,196,432
Shares issued to shareholders in
payment of distributions declared 622,979 8,356,622 4,955,544 62,992,760
Shares redeemed (7,815,672) (105,142,439) (15,487,709) (196,650,542)
Net change resulting from
Class A Share transactions (5,556,207) $ (74,610,066) (6,593,268) $ (83,461,350)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 600,114 $ 8,136,963 2,075,501 $ 26,214,023
Shares issued to shareholders in
payment of distributions declared 66,325 890,445 539,077 6,855,719
Shares redeemed (965,290) (13,030,763) (1,666,470) (21,106,138)
Net change resulting from
Class B Share transactions (298,851) $ (4,003,355) 948,108 $ 11,963,604
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 224,864 $ 3,023,943 530,050 $ 6,672,539
Shares issued to shareholders in
payment of distributions declared 36,042 483,347 358,805 4,561,299
Shares redeemed (824,684) (11,061,808) (1,739,743) (22,066,913)
Net change resulting from
Class C Share transactions (563,778) $ (7,554,518) (850,888) $ (10,833,075)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997(A)
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 733,733 $ 9,820,884 2,557,611 $ 32,448,858
Shares issued in connection with
the acquisition -- -- 59,078,573 730,686,278
Shares issued to shareholders in
payment of distributions declared 483,426 6,483,619 2,150,921 27,424,670
Shares redeemed (7,844,091) (105,139,636) (13,885,046) (175,921,876)
Net change resulting from
Class F Share transactions (6,626,932) $ (88,835,133) 49,902,059 $ 614,637,930
Net change resulting from
share transactions (13,045,768) $ (175,003,072) 43,406,011 $ 532,307,109
</TABLE>
(a) For the period from June 1, 1996 (date of initial public
investment) to February 28, 1997.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-- Passport Research Ltd., the Fund's
investment adviser (the "Adviser"), receives for its services an
annual investment advisory fee equal to 0.75% of the Fund's average
daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.
SUB-ADVISORY FEES-- On May 15, 1997, the Directors approved a
sub-advisory agreement between Passport Research Ltd. and Federated
Global Research Corp. on behalf of the Fund, effective June 1, 1997.
For its services under the Sub-Advisory agreement, the Sub-Adviser
receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which the
Sub-Adviser manages for the Fund. The fee is paid by the Adviser out
of its resources and is not an incremental Fund expense.
ADMINISTRATIVE FEE-- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE-- The Fund has adopted a Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of
the Plan, the Fund will compensate Federated Securities Corp. ("FSC"),
the principal distributor, from the net assets of the Fund to finance
activities intended to result in the sale of the Corporation's Class B
and Class C Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
SHAREHOLDER SERVICES FEE-- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of average daily net assets of the Fund shares for
the period. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ,
through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL-- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended August 31, 1997, were as follows:
PURCHASES $464,063,573
SALES $481,824,483
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer,
and Secretary
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectuses, which
contain facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314286105
Cusip 314286204
Cusip 314286303
Cusip 314286402
8092606 (10/97)
[Graphic]
APPENDIX
FEDERATED UTILITY FUND, INC.
A. The graphic representation here displayed entitled "Initial
Investment of $10,000," consists of a boxed legend in the upper left
quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested
Income for the Class A Shares of Federated Utility Fund, Inc. (the
"Fund"). The darker-shaded portion reflects the Principal Value of a
$10,000 investment in the Fund. The color-coded mountain chart is a
visual representation of the narrative text above it, which shows that
an initial investment of $10,000/1,088 Shares in the Fund on /27/88,
would have a reinvested total worth of $28,997/2,126 Shares on
8/31/97. The "x" axis reflects annual computation periods from 8/27/88
to 8/31/97. The right margin of the chart reflects the ending values
of a hypothetical investment of $10,000 in the Fund measured in
increments of $5,000 ranging from $0 to $35,000.
B. The graphic representation here displayed, entitled "Yearly
Investments of $1,000," consists of a boxed legend in the upper left
quadrant indicating the components of the corresponding mountain
chart. The lighter-shaded portion represents the value of Reinvested
Income for the Class A Shares of Federated Utility Fund, Inc. (the
"Fund"). The darker-shaded portion reflects the Principal Value of a
$1,000/?? Shares investments in the Fund (totaling $10,000 by
8/31/97). The color-coded mountain chart is a visual representation of
the narrative text above it, which shows that $1,000 annual
investments in the Fund beginning on 5/27/88 would have a reinvested
total value of $17,233/1,263 Shares on 8/31/97. The "x" axis reflects
computation periods from 5/27/88 to 8/31/97. The right margin of the
chart reflects the ending values of hypothetical annual investments of
$1,000 in the Fund measured in increments of $4000 ranging from $0 to
$20,000.
