FEDERATED UTILITY FUND INC, N-30D, 1999-04-26

FEDERATED UTILITY FUND INC
N-30D, 1999-04-26

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SEMI-ANNUAL REPORT

[Graphic]

RICHARD B. FISHER

President
Federated Utility Fund, Inc.

President's Message

Dear Fellow Shareholder:

Federated Utility Fund, Inc. was created in 1988, and I am pleased to present
its 11th Annual Report. Your fund invests in good dividend-paying utility
corporations 1-well-known and recognized companies-that supply light, heat and
communications services and products to millions of U.S. citizens, who in turn
pay their utility bills promptly. This report covers the 12-month reporting
period from March 1, 1998 through February 28, 1999.

It begins with an interview with Steven J. Lehman, Vice President, who co-
manages the fund with Linda A. Duessel, Vice President, both of Passport
Research, Ltd. Following their discussion of the current utility industry
environment and the fund's performance, as well as its strategy and holdings are
three additional items of shareholder interest. First is a series of graphs
showing the fund's long-term investment performance. Second is a complete
listing of the fund's 91 holdings in dividend-paying utility stocks, convertible
and other securities, and third is the publication of the fund's financial
statements.

During the period from March 1, 1998 through August 31, 1998, the U.S. stock
market reflected concerns over foreign economic and domestic political distress.
In the second half of the fund's fiscal year, from September 1, 1998 through
February 28, 1999, investors' exuberance returned to the market as the Standard
& Poor's ("S&P") 500 Index 2 and the Dow Jones Industrial Average ("DJIA")3
achieved strong total returns.

The defensive nature of the fund's electric utility holdings helped it to hold
up against the stock market decline in the first half of the year. However, in
the second half of the year, utilities in general-and the fund's conservative,
value-oriented holdings in particular-could not be expected to match the
enthusiastic returns of the S&P 500 Index propelled by Internet and technology
stocks, or even the performance of the great growth corporations in the DJIA.

1 Funds whose investments are concentrated in a specific industry or sector may
be subject to a higher degree of market risk than funds whose investments are
diversified.

2 The S&P 500 Index is comprised of common stocks in industry, transportation,
and financial and public utility companies. This index is unmanaged and
investments cannot be made in an index.

3 The DJIA represents share prices of selected blue chip industrial corporations
as well as public utility and transportation companies.

The fund's share classes all had positive performance taking into consideration
income, realized capital gains, and changes in net asset value. Individual share
class total return performance for the 12-month reporting period, including
income distributions and realized gains, follows. 4

<TABLE>
<CAPTION>
TOTAL RETURN INCOME DISTRIBUTIONS CAPITAL GAINS NET ASSET VALUE CHANGE
<S> <C> <C> <C> <C>
Class A Shares 7.04% $0.36 $2.31 $14.07 to $12.42 = (12%)
Class B Shares 6.18% $0.26 $2.31 $14.08 to $12.42 = (12%)
Class C Shares 6.25% $0.26 $2.31 $14.07 to $12.42 = (12%)
Class F Shares 6.99% $0.37 $2.31 $14.07 to $12.41 = (12%)
</TABLE>

In a rising yet highly volatile stock market, Federated Utility Fund, Inc.
offered the conservative investor a disciplined approach to current income and
long-term growth of income. The U.S. economy remained relatively strong,
inflation fears remained low, and utility stocks continued to offer very
attractive yields versus the S&P 500 Index. In fact, yields on U.S. electric
corporations were the highest, most attractive investment after yields on real
estate investment trusts (the fund currently holds more than 40% of its assets
in electric companies). Regardless of day-to-day fluctuations that impact the
stock market, utility stocks have a long tradition of generating strong earnings
and dividends.

Thank you for being among the approximately 94,000 shareholders who participated
in the income and growth opportunities of the many vital utility services
represented by this $1.5 billion fund. 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.

I urge you to read the Investment Review by Steve Lehman and Linda Duessel for
an excellent presentation of the value of this diversified income portfolio. As
always, we welcome your comments and suggestions.

Sincerely,

[Graphic]

Richard B. Fisher
President
April 15, 1999

4 Performance quoted is based on net asset value, represents past performance
and is not indicative of 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. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A, B, C and F Shares
were 1.15%, 1.33%, 5.37% and 5.07%, respectively.

[Graphic]

STEVEN J. LEHMAN

Vice President
Passport Research Ltd.

[Graphic]

LINDA A. DUESSEL

Vice President
Passport Research Ltd.

Investment Review

MARCH 1, 1998 THROUGH FEBRUARY 28, 1999 WAS AN EXTREMELY VOLATILE PERIOD FOR THE
STOCK MARKET, WHICH PRODUCED A STRONG RETURN ALTHOUGH THE BREADTH WAS VERY
NARROW. HOW DID UTILITIES PERFORM IN THIS ENVIRONMENT?

The stock market, as represented by the S&P 500 Index, returned (8.10%) in the
first half of the fund's fiscal year, but rallied 30.30% in the second half to
end the reporting period with a return of 19.70%. Volatility has been high, and
the market environment has become speculative once again, as evidenced by the
mania in Internet stocks.

In this environment, utilities-and a conservative, value-oriented fund like
Federated Utility Fund, Inc.-will naturally trail the S&P 500 Index. Returns for
utilities varied widely by sector. Communications stocks, which have tracked the
S&P 500 Index closely, were flat (returning 0.50% as measured by the S&P
Communications Index) 1 in the first half of the fund's fiscal year but up
+50.10% in the second half, as they benefited from the recovery in technology
and Internet stocks. Electric stocks, as represented by the S&P Electric Index,1
returned 10.10% in the first half of the fund's fiscal year but (4.30%) in the
second half, for a total of 5.40% for the 12-month period ended February 28,
1999. Natural gas stocks, as represented by the S&P Natural Gas Index,1 returned
(16.30%) in the first half of the fund's fiscal year and 29.40% in the second
half, for a total of 8.30% for the 12-month period ended February 28, 1999.

1 The S&P Communications Index, S&P Electric Index and S&P Natural Gas Index are
unmanaged indexes comprising telephone, communications-oriented, electric and
gas utilities that track daily changes in the price of stocks.
Investments cannot be made in an index.

ELECTRIC UTILITIES REMAIN THE FUND'S LARGEST COMMITMENT. ARE POSITIVE
TRENDS CONTINUING IN THAT SECTOR?

Yes. Earnings prospects for electric utility companies continue to improve.
Electric utility companies are expected to produce more rapid earnings growth
than the S&P 500 Index this year and next year for the first time in this
decade. Cash flow is at record levels, and many companies are repurchasing their
own stock, which increases demand for electric company shares. Many electric
companies have dynamic new executives with personal financial incentives to
produce higher profits and rising share prices. Further, industry deregulation
is leading to consolidations and takeovers. Finally, electric utilities are
selling at near record discounts to the S&P 500 Index on earnings, cash flow,
and dividends. Our best performing electric utilities in the fund during the
fiscal year were PECO ENERGY CO., (+85%), and MONTANA POWER CO., (+98%), as
these companies responded decisively to industry deregulation.

WHAT DO YOU LIKE ABOUT NATURAL GAS UTILITIES, WHICH REPRESENT THE FUND'S SECOND
LARGEST POSITION?

Natural gas companies are appealing to us because the leading companies have
irreplaceable assets, and gas demand is rising while it is likely that supply
will be constrained. Gas is the "fuel of choice" for new power generating plants
because it is clean, efficient, and domestic. Advances in gas turbines and
accelerated construction of new generating plants are positive for demand, while
the gas producing capacity of Canada and the Gulf of Mexico is slipping. Gas
stocks also benefit from convergence, as electric and gas companies have merged
to form broad providers of energy services in a deregulating market. Gas
companies are ripe for takeovers, and a number of local gas distributors have
been acquired this year at premiums of at least 20%. ENRON CORP., perhaps the
dominant diversified gas company in the world, was our top gas performer with a
41% total return for the fiscal year ended February 28, 1999.

WHAT ARE YOUR COMMENTS ON THE RUN-UP IN PRICES IN THE TELECOMMUNICATIONS SECTOR?

Telecommunications stocks, which benefited from surging demand for high- margin
services (such as voice mail and caller identification) and growth in Internet
usage, rose an astounding 50.90% during the fund's fiscal year, as represented
by the S&P Communications Index. Mergers and acquisitions have swept this sector
as well: AT&T bought a cable company (TCI); Bell Atlantic and GTE plan to merge;
and Worldcom completed its merger with MCI. MCI WORLDCOM was our top performer
(+114% for the fiscal year). Despite the impressive growth prospects for the
group, we are concerned about the sharp run-up in the stocks and their
historically high valuations.

WHAT IS YOUR OUTLOOK FOR INTERNATIONAL UTILITIES?

The fund has maintained a 5% position in foreign utilities. 2 Foreign utility
returns have been quite divergent, with European telecommunications stocks
particularly strong as deregulation began in Europe. Our largest foreign
holdings, TELECOM ITALIA SPA (an Italian telecommunications company) and VEBA AG
(a German electric utility), were quite undervalued based on earnings and
assets.

2 Foreign investing involves special risks, including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.

AS A NON-UTILITY HOLDING, WHAT DO YOU LIKE ABOUT REAL ESTATE INVESTMENT TRUSTS
("REITS")?

REITs, which accounted for 8.80% of the fund's assets on February 28, 1999, seem
exceptionally attractive. This investment sector is extremely undervalued based
on estimated earnings. They also have very attractive dividend yields.
Currently, we favor apartment and office/industrial REITs.

COMPARED TO THE OVERALL MARKET, HOW DID FEDERATED UTILITY FUND, INC.
PERFORM OVER THE 12-MONTH REPORTING PERIOD?

For the fiscal year ended February 28, 1999, the fund's Class A Shares returned
7.04%, based on net asset value, 3 compared to the return of 6.30% for the S&P
Utility Index4 and the astounding 50.60% return of the S&P Communications Index.
With total returns of 6.18%, 6.25% and 6.99%, based on net asset value, the
fund's Class B, C, and F Shares also were competitive with the S&P Utility
Index. The fund has a beta of 0.505-its return was excellent on a risk-adjusted
basis. Furthermore, the fund's dividend yield was 3.00% as of February 28, 1999.

HOW WERE THE FUND'S ASSETS ALLOCATED BY SECTOR ON FEBRUARY 28, 1999?

PERCENTAGE OF NUMBER
SECTOR NET ASSETS OF ISSUES
Electrics 43% 30
Natural Gas 21% 17
Telecommunications 17% 15
Foreign Utilities 5% 7
Non-Utility 12% 21
Cash Equivalents 3% -

WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF FEBRUARY 28, 1999?

COMPANY/ PERCENTAGE OF
COUNTRY SECTOR NET ASSETS
El Paso Energy (U.S.) Oil/Gas Transmission 3.00%
GTE (U.S.) Major U.S.:
Telecommunications 2.63%
Edison Electric Utilities: U.S. West 2.53%
International (U.S.)
Keyspan Energy (U.S.) Natural Gas Distribution 2.49%
Bell Atlantic (U.S.) Major U.S.: Telecommunications 2.34%
TOTAL 12.99%

3 Performance quoted is based on net asset value, 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 (i.e., less any applicable sales charge), for Class A, B, C, and
F Shares were 1.15%, 1.33%, 5.37%, and 5.07%, respectively.

4 The S&P Utility Index is an unmanaged index comprising electric and natural
gas utilities that track daily changes in the price of stocks.
Investments cannot be made in an index.

5 Beta is a measure of a fund's or stock's volatility compared to that of the
overall stock market, which, as measured by the S&P 500 Index, has a beta of
1.00. A fund with a lower beta can be expected to fluctuate in value less than
the S&P 500 Index, whereas a fund with a higher beta will fluctuate more. A beta
of 0.50 means that a fund can be expected to fluctuate in value half as much as
the S&P 500 Index.

WHAT WERE SOME OF THE FUND'S RECENT UTILITY PURCHASES?

The following are examples of recent electric, telephone, REIT, and natural gas
purchases:

EDISON INTERNATIONAL (2.53% of net assets) is a California electric company with
exceptional value, earnings growth, and management.

PINNACLE WEST CAPITAL CORP. (1.79% of net assets) is an Arizona electric
company that has shareholder-focused management and free cash flow.

U.S. WEST INC. (2.12% of net assets) is a regional phone company with a 4%
dividend yield and a price/earnings ratio that is only 60% of the S&P
500 Index.

POST PROPERTIES INC. (0.48% of net assets) is a Southern apartment REIT
with superior properties and management, along with a 7.9% dividend yield.

KEYSPAN ENERGY CORP. (2.49% of net assets) is a New York City gas company
that has a 6.5% dividend yield and a share repurchase program.

WHAT MAKES UTILITY STOCKS AN ATTRACTIVE INVESTMENT TODAY?

Utilities offer exceptionally good value based on dividend yields, cash flows,
book values, revenues, and earnings. Fundamental business prospects seem better
than they have in years, while prospects for other sectors are slowing. Finally,
utilities are a defensive sector with an almost unprecedented dividend yield
advantage relative to today's stock market.

HOW WOULD YOU OVERLAY THE FUND'S STRATEGY AGAINST THE BACKDROP OF TODAY'S STOCK
MARKET?

Our overall strategy remains value-oriented and conservative. Currently, we are
emphasizing companies that generate strong cash flow above their capital
spending and dividend requirements, and stocks with high dividend yields. The
higher the stock market gets, the more conservative our strategy becomes. This
may not be in vogue amid the mania over Internet stocks, but it is prudent for
preserving and enhancing the value of our shareholders' capital.

Two Ways You May Seek to Invest for Success:

RESULTS OF AN $11,000 INVESTMENT

IF YOU MADE AN INITIAL INVESTMENT OF $11,000 IN THE CLASS A SHARES OF FEDERATED
UTILITY FUND, INC. ON 5/27/88, REINVESTED YOUR DIVIDENDS AND CAPITAL GAINS, AND
DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $39,347 ON
2/28/99. YOU WOULD HAVE EARNED A 12.59% AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN. 1

One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.

As of 3/31/99, the Class A Shares' average annual 1-year, 5-year and 10- year
total returns were (6.05%), 11.97%, and 12.31%, respectively. Class B Shares'
average annual 1-year and since inception (10/12/94) total returns were (5.79%)
and 13.46%, respectively. Class C Shares' average annual 1- year, 5-year and
since inception (4/27/93) total returns were (2.11%), 12.40% and 10.15%,
respectively. Class F Shares' average annual 1-year and since inception (6/1/96)
total returns were (2.33%) and 13.98%, respectively. 2

[Graphic]
See Appendix A

1 Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 5.50% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate, so an investor's shares,
when redeemed, may be worth more or less than their original cost.

2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 5.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge;
Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge.

ONE STEP AT A TIME

$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 10
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $22,616.

With this approach, the key is consistency. If you had started investing $1,000
annually in the Class A Shares of Federated Utility Fund, Inc. on 5/27/88,
reinvested your dividends and capital gains, and did not redeem any shares, you
would have invested only $11,000, but your account would have reached a total
value of $22,616 1 by 2/28/99. You would have earned an average annual total
return of 12.09%.

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. An investment plan works for you when 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

1 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.

DIVIDENDS TAKEN IN CASH

IF YOU HAD MADE AN INITIAL INVESTMENT OF $11,000 IN THE CLASS A SHARES OF
FEDERATED UTILITY FUND, INC. ON 5/27/88, AND RECEIVED DIVIDENDS AS CASH AND
REINVESTED CAPITAL GAINS, YOUR ACCOUNT WOULD HAVE BEEN WORTH $22,378 ON 2/28/99.
YOU WOULD HAVE EARNED A 12.47% AVERAGE ANNUAL TOTAL RETUN FOR THE INVESTMENT
LIFE SPAN. 1

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.

[Graphic]
See Appendix C

1 Total return represents the change in the value of an investment in Class A
Shares after receiving all dividends in cash and reinvesting 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.

SYSTEMATIC INVESTING OVER TIME

IF YOU HAD MADE AN INITIAL INVESTMENT OF $5,000 IN THE CLASS A SHARES OF
FEDERATED UTILITY FUND, INC. ON 5/27/88, WITH SUBSEQUENT MONTHLY INVESTMENTS OF
$500 WITH ALL DIVIDENDS AND CAPITAL GAINS REINVESTED, YOUR ACCOUNT WOULD HAVE
BEEN WORTH $143,589 ON 2/28/99. YOU WOULD HAVE EARNED A 12.14% AVERAGE ANNUAL
TOTAL RETURN FOR THE INVESTMENT LIFE SPAN. 1

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 when you invest only
$500 monthly.

[Graphic]
See Appendix D

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.-Class A Shares

GROWTH OF A $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Utility Fund, Inc. (Class A Shares) (the "Fund") from February 28,
1989 to February 28, 1999, compared to the Standard & Poor's 500 Index
(S&P500),2 the Standard & Poor's Utility Index (S&PUI)2 and the Dow Jones
Utility Average (DJUA).2

AVERAGE ANNUAL TOTAL RETURN 3 FOR THE PERIOD ENDED FEBRUARY 28, 1999 1 Year
1.15% 5 Years 11.36% 10 Years 12.60% Start of Performance (5/27/88) 12.81%

[Graphic]

See Appendix E

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% (the $10,000 investment minus $450 sales
charge=$9,550). As of October 1, 1994, the maximum sales charge is 5.50%. The
Fund's performance assumes the reinvestment of all dividends and distributions.
The S&P500, the S&PUI and the DJUA have been adjusted to reflect reinvestment of
dividends on securities in the indexes and the average.

2 The S&P500, the S&PUI and the DJUA are not adjusted to reflect sales charges,
expenses or other fees that the Securities and Exchange Commission requires to
be reflected in the Fund's performance. The indexes are unmanaged.

3 Total return quoted reflects all applicable current sales charges.

Federated Utility Fund, Inc.-Class B Shares

GROWTH OF A $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Utility Fund, Inc. (Class B Shares) (the "Fund") from October 12, 1994
(start of performance) to February 28, 1999, compared to the Standard & Poor's
500 Index (S&P500),2 the Standard & Poor's Utility Index (S&PUI)2 and the Dow
Jones Utility Average (DJUA).2

AVERAGE ANNUAL TOTAL RETURN 3 FOR THE
PERIOD ENDED FEBRUARY 28, 1999
1 Year 1.33%
Start of Performance (10/12/94) 14.11%

[Graphic]
See Appendix F

1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 2.00% contingent deferred sales charge on any redemption
less than five years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one year from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P500, the S&PUI and the DJUA have been adjusted to reflect
reinvestment of dividends on securities in the indexes and the average.

3 Total return quoted reflects all applicable contingent deferred sales charges.

Federated Utility Fund, Inc.-Class C Shares

GROWTH OF A $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Utility Fund, Inc. (Class C Shares) (the "Fund") from April 27, 1993
(start of performance) to February 28, 1999, compared to the Standard & Poor's
500 Index (S&P500),2 the Standard & Poor's Utility Index (S&PUI)2 and the Dow
Jones Utility Average (DJUA).2

AVERAGE ANNUAL TOTAL RETURN 3 FOR THE
PERIOD ENDED FEBRUARY 28, 1999
1 Year 5.37%
5 Years 11.77%
Start of Performance (4/27/93) 10.60%

[Graphic]
See Appendix G

1 Represents a hypothetical investment of $10,000 in the Fund. The maximum
contingent deferred sales charge is 1.00% on any redemption less than one year
from the purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The S&P500, the S&PUI and the DJUA have been
adjusted to reflect reinvestment of dividends on securities in the indexes and
the average.

3 Total return quoted reflects all applicable contingent deferred sales charges.

Federated Utility Fund, Inc.-Class F Shares

GROWTH OF A $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,000 1 in the
Federated Utility Fund, Inc. (Class F Shares) (the "Fund") from June 1, 1996
(start of performance) to February 28, 1999, compared to the Standard & Poor's
500 Index (S&P500),2 the Standard & Poor's Utility Index (S&PUI)2 and the Dow
Jones Utility Average (DJUA).2

AVERAGE ANNUAL TOTAL RETURN 3 FOR THE
PERIOD ENDED FEBRUARY 28, 1999
1 Year 5.07%
Start of Performance (6/1/96) 15.02%

[Graphic]
See Appendix G

1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge=$9,900). The ending value of the Fund reflects a contingent deferred
sales charge of 1.00% on any redemption less than four years from the purchase
date. The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P500, the S&PUI, and the DJUA have been adjusted to reflect
reinvestment of dividends on securities in the indexes and the average.

3 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.

Portfolio of Investments

FEBRUARY 28, 1999

<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-92.5%
BASIC INDUSTRIES-2.1%
469,700 Barrick Gold Corp. $ 8,307,819
1,630,900 USEC, Inc. 23,138,394
TOTAL 31,446,213
ELECTRIC UTILITIES: U.S. CENTRAL-8.3%
659,700 CMS Energy Corp. 27,295,088
882,000 Central & SouthWest Corp. 21,884,625
778,000 FirstEnergy Corp. 22,756,500
762,200 Illinova Corp. 18,102,250
976,400 NIPSCO Industries, Inc. 25,325,375
270,400 Utilicorp United, Inc. 9,295,000
TOTAL 124,658,838
ELECTRIC UTILITIES: U.S. EAST-11.3%
938,000 BEC Energy 34,178,375
701,300 DQE, Inc. 26,780,894
460,300 New England Electric System 22,410,856
613,700 Peco Energy Co. 21,747,994
1,011,300 Potomac Electric Power Co. 24,650,438
542,300 Public Service Enterprises Group, Inc. 20,607,400
805,000 Rochester Gas & Electric Corp. 21,030,625
TOTAL 171,406,582
ELECTRIC UTILITIES: U.S. SOUTH-12.2%
550,500 Dominion Resources, Inc. 21,263,063
128,000 Duke Energy Corp. 7,280,000
992,800 Entergy Corp. 28,046,600
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
ELECTRIC UTILITIES: U.S. SOUTH-CONTINUED
374,500 FPL Group, Inc. $ 19,263,344
659,200 Florida Progress Corp. 26,450,400
988,700 OGE Energy Corp. 23,605,213
756,400 Reliant Energy, Inc. 20,280,975
658,500 SCANA Corp. 15,474,750
521,300 Southern Co. 13,065,081
433,300 TECO Energy, Inc. 9,370,113
TOTAL 184,099,539
ELECTRIC UTILITIES: U.S. WEST-9.4%
1,500,600 Edison International 38,265,300
148,600 Montana Power Co. 9,046,025
819,600 P G & E Corp. 25,817,400
749,000 Pinnacle West Capital Corp. 27,057,625
625,700 Puget Sound Energy, Inc. 15,095,013
1,276,500 Sempra Energy 26,806,508
TOTAL 142,087,871
FINANCE-8.8%
149,100 Apartment Investment & Management Co.,
Class A, REIT 5,833,538
331,700 Archstone Communities Trust, REIT 6,488,881
215,721 Avalonbay Communities, Inc., REIT 6,808,718
382,000 Brandywine Realty Trust, REIT 6,279,125
374,800 Camden Property Trust, REIT 9,182,600
277,000 Colonial Properties Trust, REIT 6,803,813
263,600 Duke Realty Investments, Inc., REIT 5,749,775
246,600 Equity Office Properties Trust, REIT 6,349,950
178,500 Equity Residential Properties Trust, REIT 7,318,500
502,800 First Industrial Realty Trust, Inc., REIT 13,009,950
397,800 Gables Residential Trust, REIT 9,199,125
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
FINANCE-CONTINUED
396,200 HRPT Properties Trust, REIT $ 5,422,988
287,000 Health Care Property Investors, Inc., REIT 8,430,625
440,800 Liberty Property Trust, REIT 9,642,500
222,200 New Plan Excel Realty Trust, Inc., REIT 4,610,650
202,700 Post Properties, Inc., REIT 7,233,856
346,600 Prentiss Properties Trust, REIT 6,932,000
412,000 Prologis Trust, REIT 8,549,000
TOTAL 133,845,594
FOREIGN UTILITIES-5.0%
430,800 BG PLC, ADR 12,547,050
96,635 Electricidade de Portugal SA, ADR 4,106,988
160,000 Endesa SA, ADR 4,220,000
173,300 Nippon Telegraph & Telephone Corp., ADR 7,029,481
2,370,900 Telecom Italia SPA 24,996,983
225,170 PowerGen PLC, ADR 11,286,646
217,000 Veba AG, ADR 11,663,750
TOTAL 75,850,898
MAJOR U.S. TELECOMMUNICATIONS-15.0%
203,700 AT&T Corp. 16,728,862
325,500 Ameritech Corp. 21,279,563
616,900 Bell Atlantic Corp. 35,433,194
456,200 BellSouth Corp. 21,099,250
426,400 Cincinnati Bell, Inc. 8,421,400
615,000 GTE Corp. 39,898,125
18,996 MCI Worldcom, Inc. 1,567,237
455,000 SBC Communications, Inc. 24,058,125
320,300 Sprint Corp. 27,485,744
601,400 U.S. West, Inc. 32,062,138
TOTAL 228,033,638
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS-continued
NATURAL GAS DISTRIBUTION-12.0%
525,700 AGL Resources, Inc. $ 10,021,156
573,600 Consolidated Natural Gas Co. 31,512,150
268,500 Equitable Resources, Inc. 6,947,438
1,423,300 Keyspan Energy Corp. 37,717,450
1,670,100 MCN Energy Group, Inc. 29,748,656
354,500 National Fuel Gas Co. 14,290,781
456,200 New Jersey Resources Corp. 15,938,488
237,500 Peoples Energy Corp. 8,060,156
700,400 Questar Corp. 12,519,650
277,100 UGI Corp. 5,628,594
149,200 Washington Gas Light Co. 3,571,475
300,000 WICOR, Inc. 6,337,500
TOTAL 182,293,494
OIL/GAS TRANSMISSION-6.8%
267,450 Columbia Energy Group 13,506,225
1,242,200 El Paso Energy Corp. 45,262,663
314,876 Enron Corp. 20,466,940
931,500 Sonat, Inc. 23,578,594
TOTAL 102,814,422
OTHER TELEPHONE/COMMUNICATIONS-1.6%
172,000 Alltel Corp. 10,298,500
224,000 Frontier Corp. 8,050,000
9,481 Intermedia Communications, Inc. 171,843
252,200 1 Pacific Gateway Exchange, Inc. 6,305,000
TOTAL 24,825,343
TOTAL COMMON STOCKS (IDENTIFIED COST
$1,249,669,760) 1,401,362,432
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS-3.5%
ELECTRIC UTILITIES: U.S. SOUTH-1.6%
466,500 Texas Utilities Co.,
Cumulative PRIDES, $4.63 $ 24,345,469
OIL/GAS TRANSMISSION-1.9%
815,500 K N Energy, Inc., Conv. Pfd., $3.55 28,389,594
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$57,434,503) 52,735,063
CONVERTIBLE CORPORATE PREFERRED-1.2%
BASIC INDUSTRY-0.8%
616,800 Merrill Lynch & Co., Inc., STRYPES (IMC
Global) 13,723,800
TELECOMMUNICATIONS-0.4%
328,000 2 Intermedia Communications, Inc.,
Conv. Pfd., $1.75 5,453,000
TOTAL CONVERTIBLE CORPORATE BONDS
(IDENTIFIED COST $19,627,475) 19,176,800
REPURCHASE AGREEMENT-3.0% 3
$ 45,410,000 ABN AMRO, Inc., 4.86%, dated 2/26/1999, due
3/1/1999 (AT AMORTIZED COST) 45,410,000
TOTAL INVESTMENTS (IDENTIFIED COST
$1,372,141,738) 4 $ 1,518,684,295
</TABLE>

1 Non-income producing security.

2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. This security has been deemed liquid based upon
criteria approved by the fund's Board of Directors. At February 28, 1999, this
security amounted to $5,453,000 which represents 0.4% of net assets.

3 The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the porfolio. The investment in the
repurchase agreement is through participation in a joint account with other
Federated funds.

4 The cost of investments for federal tax purposes amounts to $1,372,141,738.
The net unrealized appreciation of investments on a federal tax basis amounts to
$146,542,557 which is comprised of $213,366,918 appreciation and $66,824,361
depreciation at February 28,1999.

Note: The categories of investments are shown as a percentage of net assets
($1,515,399,195) at February 28, 1999.

The following acronyms are used throughout this portfolio:

ADR -American Depositary Receipt
PLC -Public Limited Company
PRIDES -Preferred Redeemable Increased Dividend Equity Securities
REIT -Real Estate Investment Trust
SA -Support Agreement
SPA -Standby Purchase Agreement
STRYPES -Structured Yield Product Equity Securities

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

FEBRUARY 28, 1999

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,372,141,738) $ 1,518,684,295
Income receivable 4,174,262
Receivable for
investments sold 176,639
Receivable for shares
sold 1,349,980
TOTAL ASSETS 1,524,385,176
LIABILITIES:
Payable for investments
purchased $ 6,146,285
Payable for shares
redeemed 1,448,541
Income distribution
payable 763,156
Payable to Bank 19,451
Accrued expenses 608,548
TOTAL LIABILITIES 8,985,981
Net assets for
122,051,333 shares
outstanding $ 1,515,399,195
NET ASSETS CONSIST OF:
Paid in capital $ 1,284,632,710
Net unrealized
appreciation of
investments and
translation of assets
and liabilities in
foreign currency 146,542,557
Accumulated net realized
gain on investments and
foreign currency
transactions 77,200,872
Undistributed net
investment income 7,023,056
TOTAL NET ASSETS $ 1,515,399,195
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE
CLASS A SHARES:
Net Asset Value Per Share
($756,510,175 /
60,929,697 shares
outstanding) $12.42
Offering Price Per Share
(100/94.50 of $12.42) 1 $13.14
Redemption Proceeds Per
Share $12.42
CLASS B SHARES:
Net Asset Value Per Share
($142,857,901 /
11,498,288 shares
outstanding) $12.42
Offering Price Per Share $12.42
Redemption Proceeds Per
Share (94.50/100 of
$12.42) 2 $11.74
CLASS C SHARES:
Net Asset Value Per Share
($58,011,587 / 4,672,265
shares outstanding) $12.42
Offering Price Per Share $12.42
Redemption Proceeds Per
Share (99.00/100 of
$12.42) 2 $12.30
CLASS F SHARES:
Net Asset Value Per Share
($558,019,532 /
44,951,083 shares
outstanding) $12.41
Offering Price Per Share
(100/99.00 of $12.41) 1 $12.54
Redemption Proceeds Per
Share (99.00/100 of
$12.41) 2 $12.29
</TABLE>

1 See "Investing in the Fund" in the Prospectuses.

2 See "Contingent Deferred Sales Charge" in the Prospectuses.

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED FEBRUARY 28, 1999

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of
foreign taxes withheld
of $64,500) $ 58,340,653
Interest 4,866,991
TOTAL INCOME 63,207,644
EXPENSES:
Investment advisory fee $ 11,803,339
Administrative personnel
and services fee 1,186,629
Custodian fees 86,192
Transfer and dividend
disbursing agent fees
and expenses 1,701,265
Directors'/Trustees'
fees 8,734
Auditing fees 18,000
Legal fees 7,899
Portfolio accounting
fees 184,543
Distribution services
fee-Class B Shares 1,003,367
Distribution services
fee-Class C Shares 437,867
Shareholder services
fee-Class A Shares 1,952,366
Shareholder services
fee-Class B Shares 334,456
Shareholder services
fee-Class C Shares 145,956
Shareholder services
fee-Class F Shares 1,501,668
Share registration costs 36,779
Printing and postage 288,646
Insurance premiums 5,235
Taxes 107,425
Miscellaneous 49,710
TOTAL EXPENSES 20,860,076
WAIVERS:
Waiver of shareholder
services fee-Class A
Shares $ (46,857)
Waiver of shareholder
services fee-Class F
Shares (180,200)
TOTAL WAIVERS (227,057)
Net expenses 20,633,019
Net investment income 42,574,625
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY:
Net realized gain on
investments and foreign
currency transactions 247,645,035
Net change in unrealized
(depreciation) of
investments and
translation of assets
and liabilities in
foreign currency (183,691,248)
Net realized and
unrealized gain (loss)
on investments and
foreign currency 63,953,787
Change in net assets
resulting from
operations $ 106,528,412
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 42,574,625 $ 44,662,757
Net realized gain (loss)
on investments
($247,825,220 and
$233,067,415,
respectively, as
computed for federal tax
purposes) 247,645,035 232,780,131
Net change in unrealized
appreciation/(depreciati
on) of investment and
translation of assets
and liabilities in
foreign currency (183,691,248) 34,989,912
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 106,528,412 312,432,800
NET EQUALIZATION CREDITS
(DEBITS) - (129,486)
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (20,437,214) (21,703,957)
Class B Shares (2,539,603) (2,300,377)
Class C Shares (1,100,012) (1,194,406)
Class F Shares (15,828,866) (18,218,120)
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (127,260,968) (88,374,637)
Class B Shares (22,386,351) (12,860,900)
Class C Shares (9,602,602) (6,491,544)
Class F Shares (97,416,472) (72,181,134)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (296,572,088) (223,325,075)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 225,887,414 211,193,471
Net asset value of shares
issued to shareholders
in payment of
distributions declared 250,397,338 184,280,449
Cost of shares redeemed (353,602,209) (483,421,097)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 122,682,543 (87,947,177)
Change in net assets (67,361,133) 1,031,062
NET ASSETS:
Beginning of period 1,582,760,328 1,581,729,266
End of period (including
undistributed net
investment income of
$7,023,056 and
$4,293,145,
respectively) $ 1,515,399,195 $ 1,582,760,328
</TABLE>

See Notes which are an integral part of the Financial Statements

Financial Highlights-Class A Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.07 $13.27 $12.79 $10.98 $12.24
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.38 0.42 0.52 0.48 0.55
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.64 2.52 1.22 1.82 (0.69)
TOTAL FROM INVESTMENT
OPERATIONS 1.02 2.94 1.74 2.30 (0.14)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.36) (0.41) (0.52) (0.48) (0.66)
Distributions from net
realized gain on
investments and foreign
currency transactions (2.31) (1.73) (0.74) - (0.12)
Distributions in excess
of net investment income
1 - - - (0.01) -
Tax return of capital
distribution - - - - (0.34)
Total distributions (2.67) (2.14) (1.26) (0.49) (1.12)
NET ASSET VALUE, END OF
PERIOD $12.42 $14.07 $13.27 $12.79 $10.98
TOTAL RETURN 2 7.04% 23.05% 14.34% 21.47% (0.98% )

RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.23% 1.14% 1.15% 1.14% 1.10%
Net investment income 2.79% 3.01% 3.52% 4.09% 4.95%
Expense
waiver/reimbursement 3 0.01% 0.11% 0.12% 0.15% 0.21%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $756,510 $778,059 $759,732 $816,687 $742,274
Portfolio turnover 94% 118% 44% 76% 55%
</TABLE>

1 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.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Financial Highlights-Class B Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.08 $13.28 $12.77 $10.98 $10.92
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.28 0.30 0.44 0.43 0.22
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.63 2.53 1.21 1.77 (0.04)
TOTAL FROM INVESTMENT
OPERATIONS 0.91 2.83 1.65 2.20 0.18
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.30) (0.40) (0.41) (0.08)
Distributions from net
realized gain on
investments and foreign
currency transactions (2.31) (1.73) (0.74) - -
Tax return of capital
distribution - - - - (0.04)
Total distributions (2.57) (2.03) (1.14) (0.41) (0.12)
NET ASSET VALUE, END OF
PERIOD $12.42 $14.08 $13.28 $12.77 $10.98
TOTAL RETURN 2 6.18% 22.10% 13.60% 20.45% 2.16%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.98% 1.90% 1.90% 1.90% 1.87% 3
Net investment income 2.04% 2.25% 2.81% 3.19% 4.53% 3
Expense
waiver/reimbursement 4 - 0.10% 0.12% 0.14% 0.25% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $142,858 $121,549 $101,619 $85,650 $18,780
Portfolio turnover 94% 118% 44% 76% 55%

</TABLE>

1 Reflects operations for the period from October 12, 1994 (date of initial
public investment) to February 28, 1995.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Financial Highlights-Class C Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.07 $13.28 $12.77 $10.98 $12.23
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.28 0.31 0.42 0.39 0.42
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.64 2.51 1.23 1.80 (0.64)
TOTAL FROM INVESTMENT
OPERATIONS 0.92 2.82 1.65 2.19 (0.22)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.30) (0.40) (0.39) (0.60)
Distributions from net
realized gain on
investments and foreign
currency transactions (2.31) (1.73) (0.74) - (0.13)
Distributions in excess
of net investment income
1 - - - (0.01) -
Tax return of capital
distribution - - - - (0.30)
Total distributions (2.57) (2.03) (1.14) (0.40) (1.03)
NET ASSET VALUE, END OF
PERIOD $12.42 $14.07 $13.28 $12.77 $10.98
TOTAL RETURN 2 6.25% 23.03% 13.58% 20.43% (1.66% )

RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.98% 1.90% 1.90% 1.87% 1.86%
Net investment income 2.03% 2.25% 2.77% 3.35% 4.19%
Expense
waiver/reimbursement 3 - 0.10% 0.12% 0.17% 0.21%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $58,012 $58,010 $58,196 $66,864 $56,800
Portfolio turnover 94% 118% 44% 76% 55%

</TABLE>

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable

3 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Financial Highlights-Class F Shares

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.07 $13.27 $12.37
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39 0.43 0.42
Net realized and
unrealized gain (loss)
on investments
and foreign currency 0.63 2.51 1.20
TOTAL FROM INVESTMENT
OPERATIONS 1.02 2.94 1.62
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.37) (0.41) (0.36)
Distributions from net
realized gain on
investments
and foreign
currency transactions (2.31) (1.73) (0.36)
Total distributions (2.68) (2.14) (0.72)
NET ASSET VALUE, END OF
PERIOD $12.41 $14.07 $13.27
TOTAL RETURN 2 6.99% 23.09% 13.39%

RATIOS TO AVERAGE NET
ASSETS:
Expenses 1.20% 1.12% 1.12% 3
Net investment income 2.81% 3.03% 3.79% 3
Expense
waiver/reimbursement 4 0.03% 0.13% 0.15% 3
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $558,020 $625,142 $662,182
Portfolio turnover 94% 118% 44%
</TABLE>

1 Reflects operations for the period from June 1, 1996 (date of initial public
investment) to February 28, 1997.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

FEBRUARY 28, 1999

ORGANIZATION

Federated Utility Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, 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.

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 60 days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.

REPURCHASE AGREEMENTS

It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.

Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions. The following reclassifications have been made to the financial
statements.

INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
PAID-IN CAPITAL GAIN INCOME
$(2) $(60,979) $60,981

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.

Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.

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. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. 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 purposes as
unrealized until the settlement date. At February 28, 1999, the Fund had no
outstanding foreign currency commitments.

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.

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.

CAPITAL STOCK

At February 28, 1999, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE
CAPITAL STOCK
CLASS NAME 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>
YEAR ENDED FEBRUARY 28 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,264,994 $ 143,451,215 11,139,849 $ 157,664,167
Shares issued to
shareholders in payment
of distributions
declared 9,755,853 129,737,536 6,883,799 95,222,748
Shares redeemed (14,380,818) (200,184,276) (19,973,736) (277,807,321)
NET CHANGE RESULTING
FROM CLASS A SHARE
TRANSACTIONS 5,640,029 $ 73,004,475 (1,950,088) $ (24,920,406)

<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,348,277 $ 46,162,492 1,894,637 $ 26,364,096
Shares issued to
shareholders in payment
of distributions
declared 1,616,455 21,467,469 930,693 12,887,739
Shares redeemed (2,099,423) (28,790,480) (1,845,279) (25,406,190)
NET CHANGE RESULTING
FROM CLASS B SHARE
TRANSACTIONS 2,865,309 $ 38,839,481 980,051 $ 13,845,645

<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 543,318 $ 7,461,346 409,037 $ 5,630,519
Shares issued to
shareholders in payment
of distributions declare 710,599 9,439,313 481,773 6,666,429
Shares redeemed (704,181) (9,690,530) (1,151,464) (15,690,298)
NET CHANGE RESULTING
FROM CLASS C SHARE
TRANSACTIONS 549,736 $ 7,210,129 (260,654) $ (3,393,350)

<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,073,085 $ 28,805,862 1,568,259 $ 21,534,689
Shares issued to
shareholders in payment
of distributions
declared 6,762,966 89,758,602 5,029,031 69,503,533
Shares redeemed (8,327,923) (114,936,006) (12,056,394) (164,517,288)
NET CHANGE RESULTING
FROM CLASS F SHARE
TRANSACTIONS 508,128 $ 3,628,458 (5,459,104) $ (73,479,066)
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS 9,563,202 $ 122,682,543 (6,689,795) $ (87,947,177)
</TABLE>

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.

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, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.

DISTRIBUTION SERVICES FEE

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
and Class C Shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.

PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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, 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 Fund are Officers and Directors or
Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities (and in-kind
contributions), for the period ended February 28, 1999, were as follows:

Purchases $1,419,544,350
Sales $1,517,025,383

YEAR 2000 (UNAUDITED)

Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.

Report of Ernst & Young LLP, Independent Auditors

TO THE DIRECTORS AND SHAREHOLDERS OF
FEDERATED UTILITY FUND, INC.:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Utility Fund, Inc. as of February 28,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and financial highlights for each of the periods presented therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 28, 1999, by correspondence with the custodian and brokers or other
appropiate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Utility
Fund, Inc. at February 28, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and financial highlights for each of the periods presented therein,
in conformity with generally accepted accounting principles.

[Graphic]

Ernst & Young LLP

Boston, Massachusetts
April 19, 1999

Directors

JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
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 and Secretary

RICHARD J. THOMAS
Treasurer

NICHOLAS J. SEITANAKIS
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 the 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.

AS OF FEBRUARY 28, 1999

[Graphic]
Federated
World-Class Investment Manager

ANNUAL REPORT as of February 28, 1999

Federated Utility Fund, Inc.

Established 1988

11TH ANNUAL REPORT

[Graphic]
Federated
Federated Utility Fund, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor

Cusip 314286105
Cusip 314286204
Cusip 314286303
Cusip 314286402
G01049-01 (4/99)

[Graphic]

A. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/27/88 to 2/28/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $40,000 and
indicates that the ending value of hypothetical initial investment of $11,000 in
the Fund's Class A Shares, assuming a 5.50% sales charge and the reinvestment of
all capital gains and dividends, would have grown to $39,347on 2/28/99.

B. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/27/88 to 2/28/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $25,000 and
indicates that the ending value of hypothetical yearly investments of $1,000 in
the Fund's Class A Shares, assuming the reinvestment of all capital gains and
dividends, would have grown to $22,616 on 2/28/99.

C. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color-coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/27/88 to 2/28/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $25,000 and
indicates that the ending value of a hypothetical initial investment of $11,000
in the Fund's Class A Shares, assuming dividends received as cash and capital
gains reinvested, would have grown to $22,378 on 2/28/99.

D. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/27/88
to 2/28/99. The "y" axis is measured in increments of $30,000 ranging from $0 to
$150,000 and indicates that the ending value of a hypothetical initial
investment of $5,000 and subsequent monthly investments of $500 over ten years
in the Fund's Class A Shares would have grown to $145,589 Shares on 2/28/99.

E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
A Shares of the Fund based on a 4.50% sales charge is represented by a solid
line. The Standard & Poor's 500 Index ("S&P500") is represented by a dotted
line, the Standard & Poor's Utility Index ("S&PUI") is represented by a dashed
line, and the Dow Jones Utility Average ("DJUA") is represented by a broken
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in Class A Shares of the Fund and the
S&P500, S&PUI, and the DJUA. The "x" axis reflects computation periods from
2/28/89 to 2/28/99. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the Fund's
Class A Shares based on a 4.50% sales charge, as compared to the S&P500, the
S&PUI, and
the DJUA; the ending values were $33,084, $55,841, $34,960, and 28,925,
respectively. The legend above the graphic presentation indicates the Fund's
Class A Shares Average Annual Total Return for the one-year, five-year, ten-year
and Start of Performance periods ended 2/28/99, which were 1.15%, 11.36%, and
12.60%, and 12.81% respectively.

F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
B Shares of the Fund is represented by a solid line. The Standard & Poor's 500
Index ("S&P500") is represented by a dotted line, the Standard & Poor's Utility
Index ("S&PUI") is represented by a dashed line, and the Dow Jones Utility
Average ("DJUA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in Class B Shares of the Fund and the S&P500, S&PUI, and the DJUA.
The "x" axis reflects computation periods from 10/12/94 to 2/28/99. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund's Class B Shares, as compared to the
S&P500, the S&PUI, and the DJUA; the ending values were $17,923, $29,284,
$19,248, and $20,346, respectively. The legend above the graphic presentation
indicates the Fund's Class B Shares Average Annual Total Return for the one-year
and Start of Performance periods ended 2/28/99, which were 1.33% and 14.11%,
respectively.

G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
C Shares of the Fund is represented by a solid line. The Standard & Poor's 500
Index ("S&P500") is represented by a dotted line, the Standard & Poor's Utility
Index ("S&PUI") is represented by a dashed line, and the Dow Jones Utility
Average ("DJUA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in Class C Shares of the Fund and the S&P500, S&PUI, and the DJUA.
The "x" axis reflects computation periods from 4/27/93 to 2/28/99. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund's Class C Shares, as compared to the
S&P500, the S&PUI, and the DJUA; the ending values were $18,013, $32,033,
$18,723, and $16,827, respectively. The legend above the
graphic presentation indicates the Fund's Class C Shares Average Annual Total
Return for the one-year, five-year and Start of Performance periods ended
2/28/99, which were 5.37%, 11.77%, and 10.60%, respectively.

<PAGE>

H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed above the graph. The Class
F Shares of the Fund is represented by a solid line. The Standard & Poor's 500
Index ("S&P500") is represented by a dotted line, the Standard & Poor's Utility
Index ("S&PUI") is represented by a dashed line, and the Dow Jones Utility
Average ("DJUA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in Class F Shares of the Fund and the S&P500, S&PUI, and the DJUA.
The "x" axis reflects computation periods from 6/1/96 to 2/28/99. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund's Class F Shares, as compared to the
S&P500, the S&PUI, and the DJUA; the ending values were $14,648, $19,409,
$14,117 and $15,866, respectively. The legend above the graphic presentation
indicates the Fund's Class F Shares Average Annual Total Return for the one-year
and Start of Performance periods ended 2/28/99, which were 5.07% and 15.02%,
respectively.