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 12th Semi-Annual Report. Your fund invests in good dividend-paying utility
corporations 1-well known and recognized companies- that supply light, heat and
telecommunications services and products to millions of utility customers.
The fund's total assets of $1.5 billion are invested in 84 corporations with a
gross dividend yield of 4.2%. Domestic utilities make up 81% of the fund's
holdings. U.S. West, El Paso Energy, GTE, AT&T and Keyspan Energy are typical
fund investments. The fund's managers seek high current income and growth in a
broadly diversified portfolio in four distinct sectors: electrics,
communications, natural gas and Real Estate Investment Trusts ("REITs"). These
sector issues have provided income and growth opportunities for shareholders.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from March 1, 1999 through August 31, 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 the fund's 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 84
holdings in dividend-paying utility stocks, convertible and other securities,
and third is the publication of the fund's financial statements. I urge all
shareholders to review the fund's portfolio.
I would like to point out that, in the fund's history, share prices have
declined only in 1994, when the Federal Reserve Board (the "Fed") increased
rates five times. In 1999, the Fed has increased rates twice, and its actions
have caused all bonds and interest rate-sensitive securities, such as utilities,
to decline. Naturally, the fund's share value was reduced in the last six
months. However, from the end of 1994 to the present, the fund has performed
very well. I believe the broad diversification, various sector weightings and
the fund managers' investment strategy of using high-quality utility stocks
positions the fund to serve investors well.
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.
During the six-month reporting period, the U.S. stock market recorded positive,
but less-spectacular returns, as gains were concentrated among the relatively
few large stocks that dominate the indexes used to measure the market. In this
environment, the fund's returns were particularly strong on a risk-adjusted
basis compared to the 7.32% return of the Standard & Poor's ("S&P") 500 Index. 2
As of August 31, 1999, the fund's beta was less than 0.50, which means that the
portfolio at that time had less than half of the volatility of the stock market
overall.3
Individual share class total return performance for the six-month reporting
period, including income distributions and realized gains, follows. 4
<TABLE>
<CAPTION>
TOTAL RETURN INCOME CAPITAL GAINS NET ASSET VALUE CHANGE
<S> <C> <C> <C> <C>
Class A Shares 5.02% $0.18 $0.68 $12.42 to $12.21 = (0.5%)
Class B Shares 4.70% $0.13 $0.68 $12.42 to $12.22 = (0.5%)
Class C Shares 4.62% $0.13 $0.68 $12.42 to $12.21 = (0.5%)
Class F Shares 5.11% $0.18 $0.68 $12.41 to $12.21 = (0.5%)
</TABLE>
The U.S. economy remains relatively strong, inflation fears continue to be low
and the stock market continues to experience considerable day-to-day volatility.
In this environment, Federated Utility Fund, Inc. offers the conservative
investor a disciplined approach to a fundamental market that has a long
tradition of generating strong earnings and dividends.
Thank you for being among the approximately 94,000 shareholders who participate
in the income and growth opportunities of the many vital utility services
represented in your 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, 1999
2 The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries.
Indexes are unmanaged and investments cannot be made in an index.
3 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 has tended to fluctuate in value less than the
S&P 500 Index, whereas a fund with a higher beta has tended to fluctuate more. A
beta of 0.50 means that a fund has tended to fluctuate in value half as much as
the S&P 500 Index.
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 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 (0.73%), (0.71%), 3.64% and 3.05%, respectively.
[Graphic]
STEVEN J. LEHMAN
Vice President
Passport Research Ltd.
[Graphic]
LINDA A. DUESSEL
Vice President
Passport Research Ltd.
Investment Review
OVERALL, THE FIRST HALF OF THE FUND'S FISCAL YEAR WAS A POSITIVE PERIOD FOR
UTILITIES, WHICH OUTPERFORMED THE S&P 500 INDEX. WHAT ARE YOUR COMMENTS ON THE
PERFORMANCE OF DIFFERENT UTILITY SECTORS DURING THE PERIOD?
Utilities in general had a strong six-month period as the S&P Utility Index
returned 10.01% compared to the S&P 500 Index's return of 7.32%. Performance
among different utility sectors was quite divergent, as the S&P Electric Index
returned 4.28%, the S&P Natural Gas Index returned 22.57%, and the S&P
Communications Index returned 1.91%. 1
The fund's telecommunications stocks continued to benefit from surging demand
for telecommunications services and from falling costs. GTE was our top
performing local telecommunications company; however, long distance stocks were
generally weak, i.e., AT&T and SPRINT. NIPPON TELEGRAPH AND TELEPHONE, Japan's
largest phone company, was our top foreign performer for the six-month reporting
period.
Natural gas stocks benefited from rising gas prices and continued merger
activity. ENRON CORP. (EOG RESOURCES), and KEYSPAN excelled during the reporting
period. WICOR, a Wisconsin gas utility, performed well for the fund on a
takeover bid from Wisconsin Energy, the state's largest electric company.
Natural gas stocks continue to seem attractive, as gas demand is growing while
gas production is falling. Furthermore, there is scarcity value as gas companies
continue to be acquired, usually by larger electric companies.
1 The S&P Utility Index is an unmanaged market cap-weighted index of natural gas
and electric companies. The S&P Communications Index, S&P Electric Index and S&P
Natural Gas Index are unmanaged market cap-weighted indexes comprising
telephone, communications-oriented, electric, and gas utilities that track daily
changes in the price of stocks. Indexes are unmanaged and investments cannot be
made in an index.
Continued merger activity helped electric utility stocks that were held during
the six-month reporting period - notably, ILLINOVA after it agreed to merge with
Dynegy, a power and gas marketer, and POTOMAC ELECTRIC on better prospects for
its telecommunications venture. Electric stocks continued to be undervalued, and
strong cash flows and industry restructuring provided opportunities for enhanced
returns to shareholders.
Among non-utility holdings that were held during the six-month reporting period,
LIBERTY PROPERTY TRUST and PRENTISS led our REITs holdings. The sector is still
undervalued with a price-to-earnings ratio of 10 and a dividend yield of 7.00%.
REITs have looked particularly attractive relative to electric utility stocks.
We continue to favor apartment and office/industrial REITs.
DID YOU MAKE ANY MATERIAL STRATEGY CHANGES DURING THE REPORTING PERIOD?
Our major strategy change this year has been to increase our telecommunications
exposure to benefit from the strong demand for telecommunications related
services. On August 31, 1999, this sector comprised 30.1% of the fund, up from
17% as of February 28, 1999. Electric utility securities comprised 27.9%,
compared to nearly 46% at year end 1998.
COMPARED TO THE OVERALL MARKET, HOW DID FEDERATED UTILITY FUND, INC. PERFORM
OVER THE SIX-MONTH REPORTING PERIOD?
For the first half of the fund's fiscal year, the fund's Class A Shares returned
5.02%, based on net asset value, compared to the return of 10.01% for the S&P
Utility Index and the 1.91% return of the S&P Communications Index. The fund's
Class B, C, and F Shares produced total returns of 4.70%, 4.62% and 5.11%,
respectively, based on net asset value. 2 As of August 31, 1999 the fund's beta
was less than 0.50, which means that the portfolio at that time had less than
half the volatility of the stock market overall. Furthermore, as of August 31,
1999, the fund's dividend yield of the underlying securities was 3.00%.
2 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 (0.73%), (0.71%), 3.64% and 3.05%, respectively.
HOW WERE THE FUND'S ASSETS ALLOCATED BY SECTOR ON AUGUST 31, 1999?
The fund's sector breakdown as of August 31, 1999 follows:
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
SECTOR NET ASSETS ISSUES
<S> <C> <C>
Telecommunications 30.1% 23
Electrics 27.9% 22
Natural Gas 24.7% 21
Non-Utility 7.3% 11
Foreign Utilities 5.8% 7
</TABLE>
Across every sector, we continue to emphasize companies that have strong cash
flow and the management skills to deploy that cash into attractive returns for
shareholders.
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF AUGUST 31, 1999?
COMPANY/ PERCENTAGE OF
COUNTRY SECTOR NET ASSETS
KeySpan Energy (U.S.) Natural Gas Distribution 3.1%
El Paso Energy (U.S.) Oil Gas Transmission 3.1%
GTE (U.S.) Major U.S. Telecommunications 2.8%
MCI Worldcom, Inc. (U.S.) Major U.S. Telecommunications 2.8%
Sprint Corp. (U.S.) Major U.S. Telecommunications 2.7%
TOTAL 14.5%
WHAT WERE SOME OF THE FUND'S RECENT UTILITY PURCHASES?
The following are examples of recent purchases:
CENTURYTEL (1.91% of net assets): is a rural U.S. telephone company that has
grown rapidly due to good management and less competitive markets. CenturyTel
generates large cash flows and sells at a discount to peers despite 15% earnings
growth prospects.
Convertible preferred shares of leading independent natural-gas producers ENRON
CORP. (EOG RESOURCES), and KERR-MCGEE CORP. (DEVON ENERGY), (1.06% and 0.7% of
net assets, respectively) have dividend yields of 7.0% and 5.5%, respectively.
Prospects for natural gas appear excellent as demand is rising steadily
particularly for new, gas-fired power plants and production of gas is falling.
NICOR (1.44% of net assets) is a well-managed natural gas utility in the Chicago
area. Natural gas companies are rapidly being acquired, and this is one of the
best candidates as it is financially strong and located in a growing service
territory.
WHAT IS THE CONTINUED APPEAL OF UTILITIES AS WE APPROACH THE YEAR 2000?
In an extremely overvalued market for leading growth companies, utilities offer
an appealing combination of value and growth. Electric and gas stocks appear
undervalued based on earnings, dividends, and asset values. Telecommunications
stocks offer fine growth prospects at generally reasonable valuations. With a
low price-to-earnings ratio, REITs appear undervalued and may offer a good
dividend yield. Of course, utilities in general offer relative safety due to the
essential nature of their services.
Last Meeting of Shareholders
A Special Meeting of the Fund's shareholders was held on May 12, 1999. On
January 12, 1999, the record date for the shareholders voting at the meeting,
there were 122,490,358 total outstanding shares. The following items were
considered by shareholders and the results were as follows:
AGENDA ITEM 1
Elected Directors:
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 93,319,203 3,159,961
John T. Conroy, Jr. 93,334,149 3,145,015
Nicholas P. Constantakis 93,376,549 3,102,615
John F. Cunningham 93,401,334 3,077,830
J. Christopher Donahue 93,360,782 3,118,382
Peter E. Madden 93,414,379 3,064,785
Charles F. Mansfield, Jr. 93,370,227 3,108,937
John E. Murray, Jr., J.D., S.J.D. 93,421,563 3,057,601
John S. Walsh 93,411,475 3,067,689
</TABLE>
AGENDA ITEM 2
Ratified the selection of Ernst & Young LLP as the Fund's Independent auditors.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
92,362,430 511,836 3,604,897
</TABLE>
AGENDA ITEM 3
Made changes to the Fund's fundamental investment policies:
(a) Revised the Fund's fundamental investment policy regarding diversification
of its investments.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
67,691,859 2,150,459 26,636,846
</TABLE>
(b) Approved making non-fundamental, and amending, the Fund's fundamental
investment policy regarding investing in restricted securities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
66,757,789 2,798,884 26,922,491
</TABLE>
(c) Approved making non-fundamental the Fund's fundamental investment policy
prohibiting investment in securities to exercise control of an issuer.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
66,874,662 2,594,640 27,009,862
</TABLE>
(d) Approved making non-fundamental, and amending, the Fund's fundamental
investment policy to permit the Fund to invest in the securities of other
investment companies.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
67,157,228 2,480,848 26,841,088
</TABLE>
(e) Revised the Fund's fundamental investment policy regarding borrowing to
permit the purchase of securities while borrowings are outstanding.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
65,812,082 3,734,165 26,932,917
</TABLE>
(f) Approved changing from fundamental to a non-fundamental operating policy,
and amending the Fund's fundamental investment policy on investing in securities
of foreign issuers.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
65,326,926 4,145,090 27,007,148
</TABLE>
AGENDA ITEM 4
Eliminated certain of the Fund's fundamental investment policies:
(a) Removed the Fund's fundamental investment policy on investing in new
issuers.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
66,204,226 3,297,903 26,977,035
</TABLE>
(b) Removed the Fund's fundamental investment policy regarding investing in oil,
gas and minerals.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
66,823,008 2,817,706 26,838,450
</TABLE>
(c) Removed the Fund's fundamental investment policy on investing in issuers
whose securities are owned by Officers and Directors.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
65,222,281 4,257,628 26,999,255
</TABLE>
(d) Removed the Fund's fundamental investment policy on investing in warrants.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
65,973,224 3,268,924 27,237,016
</TABLE>
AGENDA ITEM 5
Approved the addition of the authority to purchase options and to remove the 5%
limitation on investing in options.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
64,749,111 4,779,349 26,950,704
</TABLE>
AGENDA ITEM 6
Approved amendments to the Fund's Amended and Restated Articles of
Incorporation.
(a) Approved amendments to the Fund's Amended and Restated Articles of
Incorporation requiring the approval by a "1940 Act" majority of shareholders in
the event of the sale or conveyance of the assets of the Fund to another fund or
corporation.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
61,869,044 3,057,167 31,552,953
</TABLE>
(b) Approved amendments to the Fund's Amended and Restated Articles of
Incorporation to permit the Board of Directors to liquidate the assets of a
series or class without shareholder approval to the extent permitted under
Maryland law.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
65,723,844 3,854,259 26,901,061
</TABLE>
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $12,000 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 $45,972
ON 8/31/99. YOU WOULD HAVE EARNED A 12.67% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/99, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (1.33%), 12.79%, and 11.38%, respectively. Class B Shares'
average annual 1-year, 5-year, and since inception (9/28/94) total returns were
(1.14%), 13.02%, and 13.27%, respectively. Class C Shares' average annual
1-year, 5-year, and since inception (4/27/93) total returns were 2.76%, 13.21%,
and 10.16%, respectively. Class F Shares' average annual 1- year and since
inception (6/1/96) total returns were 2.53% and 13.57%, respectively. 2
[Graphic]
1 Total return represents the change in the value of an investment 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 11
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $24,787.
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 $12,000, but your
account would have reached a total value of $24,787 1 by 8/31/99. You would have
earned an average annual total return of 11.97%.
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 can work 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]
1 This chart assumes that the subsequent annual investments are made on the last
day of each calendar year. No method of investing can guarantee a profit or
protect against loss in down markets.
Portfolio of Investments
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-83.5%
BASIC INDUSTRY-0.6%
786,300 USEC, Inc. $ 8,501,869
ELECTRIC UTILITIES:
U.S. CENTRAL-4.2%
100,000 CMS Energy Corp. 3,956,250
191,700 Central Hudson Gas &
Electric Corp. 8,099,325
502,800 FirstEnergy Corp. 14,361,225
1,087,900 NiSource, Inc. 25,837,625
405,600 Utilicorp United, Inc. 9,404,850
TOTAL 61,659,275
ELECTRIC UTILITIES:
U.S. EAST-8.4%
576,600 BEC Energy 24,901,912
506,000 Cinergy Corp. 15,369,750
518,300 Constellation Energy Group 15,354,637
701,300 DQE, Inc. 27,131,544
867,300 Energy East Corp. 21,682,500
805,000 RGS Energy Group, Inc. 20,829,375
TOTAL 125,269,718
ELECTRIC UTILITIES:
U.S. SOUTH-6.2%
571,000 Duke Energy Corp. 32,832,500
275,200 FPL Group, Inc. 14,860,800
770,200 OGE Energy Corp. 18,099,700
1,020,000 SCANA Corp. 25,500,000
TOTAL 91,293,000
ELECTRIC UTILITIES:
U.S. WEST-6.3%
1,190,600 Edison International 30,211,475
430,600 Pinnacle West Capital
Corp. 16,362,800
625,700 Puget Sound Energy, Inc. 14,821,269
686,500 Sempra Energy 15,317,531
678,600 Western Resources, Inc. 16,201,575
TOTAL 92,914,650
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-continued
FINANCE-5.4%
747,900 AMB Property Corp., REIT $ 16,079,850
331,700 Archstone Communities
Trust, REIT 7,090,087
269,200 Camden Property Trust,
REIT 7,470,300
452,800 Duke Realty Investments,
Inc., REIT 10,159,700
478,700 Equity Office Properties
Trust, REIT 12,236,769
119,200 Equity Residential
Properties Trust, REIT 5,244,800
133,900 Post Properties, Inc.,
REIT 5,473,163
852,200 Prologis Trust, REIT 16,724,425
TOTAL 80,479,094
FOREIGN UTILITIES-5.8%
194,700 Cable & Wireless
Communications PLC, ADR 6,741,488
169,000 KPN NV, ADR 7,689,500
124,000 Nippon Telegraph &
Telephone Corp., ADR 7,006,000
446,300 1 Swisscom AG, ADR 14,811,581
467,100 Tele Danmark 13,137,188
589,200 Telecom Corp. of New
Zealand, ADR 20,990,250
326,100 Telefonica SA, ADR 15,713,944
TOTAL 86,089,951
MAJOR
U.S. TELECOMMUNICATIONS-
21.1%
642,200 AT&T Corp. 28,899,000
412,300 Ameritech Corp. 26,026,438
437,000 Bell Atlantic Corp. 26,766,250
811,500 BellSouth Corp. 36,720,375
655,400 Cincinnati Bell, Inc. 12,124,900
599,400 GTE Corp. 41,133,825
541,000 MCI Worldcom, Inc. 40,980,750
455,000 SBC Communications, Inc. 21,840,000
914,900 Sprint Corp. 40,598,688
721,500 U.S. West, Inc. 37,698,375
TOTAL 312,788,601
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS-continued
NATURAL GAS DISTRIBUTION-
13.3%
480,600 AGL Resources, Inc. $ 8,680,837
207,000 Atmos Energy Corp. 5,187,938
267,450 Columbia Energy Group 15,796,266
1,547,800 KeySpan Corp. 45,660,100
1,279,400 MCN Energy Group, Inc. 22,869,275
354,500 National Fuel Gas Co. 16,683,656
453,100 New Jersey Resources Corp. 17,557,625
554,000 NICOR, Inc. 21,432,875
246,500 ONEOK, Inc. 7,656,906
237,500 Peoples Energy Corp. 8,653,906
772,900 Questar Corp. 14,588,488
300,000 WICOR, Inc. 8,775,000
149,200 Washington Gas Light Co. 3,981,775
TOTAL 197,524,647
OIL/GAS TRANSMISSION-6.9%
1,242,200 El Paso Energy Corp. 45,417,937
618,600 Enron Corp. 25,903,875
529,900 Pennzoil-Quaker State Co. 7,352,362
563,200 Williams Cos., Inc. (The) 23,232,000
TOTAL 101,906,174
OTHER
TELEPHONE/COMMUNICATION-
5.3%
511,700 Alltel Corp. 34,603,713
718,300 CenturyTel, Inc. 28,238,169
135,300 Frontier Corp. 5,674,144
205,000 1 IXC Communications, Inc. 7,200,625
15,548 Intermedia Communications,
Inc. 404,248
129,600 1 Pacific Gateway Exchange,
Inc. 2,640,600
TOTAL 78,761,499
TOTAL COMMON STOCKS
(IDENTIFIED COST
$1,105,747,986) 1,237,188,478
<CAPTION>
SHARES VALUE
<S> <C> <C>
CONVERTIBLE PREFERRED
STOCKS-11.7%
BASIC INDUSTRY-0.8%
616,800 Merrill Lynch & Co., Inc.,
STRYPES (IMC Global) $ 11,642,100
BROADCASTING-0.5%
153,200 Cox Communications, Inc.,
PRIDES, $.88 8,062,150
ELECTRIC UTILITIES:
U.S. CENTRAL-1.6%
589,500 CMS Energy Corp., Conv.
Pfd., $.91 23,801,062
ELECTRIC UTILITIES:
U.S. SOUTH-1.3%
366,200 Texas Utilities Co.,
Cumulative PRIDES, $4.63 19,042,400
NATURAL GAS DISTRIBUTION-
2.7%
907,000 Coastal Corp., PRIDES,
$.41 24,885,812
665,000 Enron Corp., Note, $.39
(EOG Resources) 15,752,188
TOTAL 40,638,000
OIL/GAS TRANMISSIONS-1.7%
265,000 Kerr-McGee Corp., DECS,
$.46 (Devon Energy) 9,705,625
461,100 K N Energy, Inc., Conv.
Pfd., $3.55 16,023,225
TOTAL 25,728,850
TELECOMMUNICATIONS-3.1%
147,500 Global TeleSystems Group,
Inc., Conv. Pfd., $.91 8,296,875
96,500 ICG Communications, Inc.,
Conv. Pfd. 4,861,187
220,500 IXC Communications, Inc.,
Cumulative Conv. Pfd.,
$3.38 8,947,669
30,600 McLeod, Inc., Conv. Pfd.,
$4.22 10,036,800
140,400 2 Qwest Communications
International, Inc., Conv.
Pfd., $.60 6,863,173
6,750 2 WinStar Communications,
Inc., Conv. Pfd., $1.81 6,496,875
TOTAL 45,502,579
TOTAL CONVERTIBLE
PREFERRED STOCKS
(IDENTIFIED COST
$167,670,621) 174,417,141
<CAPTION>
PRINCIPAL
SHARES VALUE
<S> <C> <C>
CONVERTIBLE CORPORATE
BONDS-0.6%
COMMUNICATION SERVICE-0.6%
$ 7,700,000 2 ITC DeltaCom, Inc., Conv.
Bond, 4.50%, 5/15/2006
(identified cost
$7,842,458) $ 8,989,750
REPURCHASE AGREEMENT-3.8% 3
56,050,000 Salomon Brothers, Inc., 5.50%, dated 8/31/1999, due 9/1/1999
(at amortized cost) 56,050,000 TOTAL INVESTMENTS (IDENTIFIED
COST
$1,337,311,065) 4 $ 1,476,645,369
</TABLE>
1 Non-income producing security.
2 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's Board of Directors. At August 31, 1999, these
securities amounted to $22,349,798 which represents 1.5% of net assets.
3 The repurchase agreement is fully collateralized by U.S. Treasury 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.
4 The cost of investments for federal tax purposes amounts to $1,337,311,065.
The net unrealized appreciation of investments on a federal tax basis amounts to
$139,334,304 which is comprised of $180,197,730 appreciation and $40,863,426
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,482,168,304) at August 31, 1999.
The following acronyms are used throughout this portfolio:
ADR -American Depositary Receipt
DECS -Dividend Enhanced Convertible Stock
PLC -Public Limited Company
PRIDES -Preferred Redeemable Increased Dividend Equity Securities
SA -Support Agreement
STRYPES -Structured Yield Product Equity Securities
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,337,311,065) $ 1,476,645,369
Income receivable 3,171,613
Receivable for investments
sold 6,748,165
Receivable for shares sold 584,132
TOTAL ASSETS 1,487,149,279
LIABILITIES:
Payable for investments
purchased $ 2,322,254
Payable for shares
redeemed 900,044
Income distribution
payable 1,042,989
Payable to Bank 174,856
Payable for taxes withheld 91,214
Accrued expenses 449,618
TOTAL LIABILITIES 4,980,975
Net assets for 121,394,375
shares outstanding $ 1,482,168,304
NET ASSETS CONSIST OF:
Paid in capital $ 1,275,914,167
Net unrealized
appreciation of
investments and
translation of assets and
liabilities in foreign
currency 139,334,304
Accumulated net realized
gain on investments and
foreign currency
transactions 58,798,970
Undistributed net
investment income 8,120,863
TOTAL NET ASSETS $ 1,482,168,304
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($749,582,142 / 61,397,212
shares outstanding) $12.21
Offering Price Per Share
(100/94.50 of $12.21) 1 $12.92
Redemption Proceeds Per
Share $12.21
CLASS B SHARES:
Net Asset Value Per Share
($148,668,934 / 12,167,588
shares outstanding) $12.22
Offering Price Per Share $12.22
Redemption Proceeds Per
Share (94.50/100 of
$12.22) 2 $11.55
CLASS C SHARES:
Net Asset Value Per Share
($57,741,054 / 4,729,545
shares outstanding) $12.21
Offering Price Per Share $12.21
Redemption Proceeds Per
Share (99.00/100 of
$12.21) 2 $12.09
CLASS F SHARES:
Net Asset Value Per Share
($526,176,174 / 43,100,030
shares outstanding) $12.21
Offering Price Per Share
(100/99.00 of $12.21) 1 $12.33
Redemption Proceeds Per
Share (99.00/100 of
$12.21) 2 $12.09
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign
taxes withheld of
$158,432) $ 30,948,517
Interest 1,433,549
TOTAL INCOME 32,382,066
EXPENSES:
Investment advisory fee $ 5,832,992
Administrative personnel
and services fee 586,410
Custodian fees 56,000
Transfer and dividend
disbursing agent fees and
expenses 831,586
Directors'/Trustees' fees 5,406
Auditing fees 8,975
Legal fees 3,949
Portfolio accounting fees 85,169
Distribution services fee-
Class B Shares 565,897
Distribution services fee-
Class C Shares 227,077
Shareholder services fee-
Class A Shares 976,877
Shareholder services fee-
Class B Shares 188,632
Shareholder services fee-
Class C Shares 75,692
Shareholder services fee-
Class F Shares 703,129
Share registration costs 43,513
Printing and postage 141,977
Insurance premiums 2,581
Taxes 60,053
Miscellaneous 27,146
TOTAL EXPENSES 10,423,061
EXPENSES WAIVED AND
REDUCED BY DIRECTED
BROKERAGE ARRANGEMENTS:
Waiver of shareholder
services fee-Class A
Shares $ (23,445)
Waiver of shareholder
services fee-Class F
Shares (84,376)
Fees paid indirectly from
directed broker
arrangements (32,529)
TOTAL EXPENSES WAIVED AND
REDUCED BY DIRECTED
BROKERAGE ARRANGEMENTS (140,350)
Net expenses 10,282,711
Net investment income 22,099,355
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on
investments and foreign
currency transactions 61,925,393
Net change in unrealized
appreciation
(depreciation) of
investments and
translation of assets and
liabilities in foreign
currency (7,208,253)
Net realized and
unrealized gain (loss) on
investments and
foreign currency
transactions 54,717,140
Change in net assets
resulting from operations $ 76,816,495
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
AUGUST 31, FEBRUARY 28,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 22,099,355 $ 42,574,625
Net realized gain on
investments/($61,925,393
and $247,825,220,
respectively, as computed
for federal tax purposes) 61,925,393 247,645,035
Net change in unrealized
appreciation
(depreciation) of
investments and
translation of assets and
liabilities in foreign
currency (7,208,253) (183,691,248)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 76,816,495 106,528,412
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (10,954,419) (20,437,214)
Class B Shares (1,548,989) (2,539,603)
Class C Shares (626,323) (1,100,012)
Class F Shares (7,871,817) (15,828,866)
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares (40,311,112) (127,260,968)
Class B Shares (7,724,974) (22,386,351)
Class C Shares (3,167,169) (9,602,602)
Class F Shares (29,124,040) (97,416,472)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (101,328,843) (296,572,088)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 62,233,428 225,887,414
Net asset value of shares
issued to shareholders in
payment of
distributions declared 85,594,499 250,397,338
Cost of shares redeemed (156,546,470) (353,602,209)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (8,718,543) 122,682,543
Change in net assets (33,230,891) (67,361,133)
NET ASSETS:
Beginning of period 1,515,399,195 1,582,760,328
End of period (including
undistributed net
investment income of
$8,120,863 and $7,023,056,
respectively) $ 1,482,168,304 $ 1,515,399,195
</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>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.42 $14.07 $13.27 $12.79 $10.98 $12.24
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.19 0.38 0.42 0.52 0.48 0.55
Net realized and
unrealized gain (loss) on
investments and foreign
currency 0.46 0.64 2.52 1.22 1.82 (0.69)
TOTAL FROM
INVESTMENT OPERATIONS 0.65 1.02 2.94 1.74 2.30 (0.14)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (0.36) (0.41) (0.52) (0.48) (0.66)
Distributions from net
realized gain
on investments and foreign
currency transactions (0.68) (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 (0.86) (2.67) (2.14) (1.26) (0.49) (1.12)
NET ASSET VALUE, END OF
PERIOD $12.21 $12.42 $14.07 $13.27 $12.79 $10.98
TOTAL RETURN 2 5.02% 7.04% 23.05% 14.34% 21.47% (0.98%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.23% 4 1.24% 1.25% 1.27% 1.29% 1.31%
Net investment income 3 2.92% 4 2.78% 2.90% 3.40% 3.94% 4.74%
Expenses (after waivers
and reimbursements) 1.22% 4 1.23% 1.14% 1.15% 1.14% 1.10%
Net investment income
(after waivers
and reimbursements) 2.93% 4 2.79% 3.01% 3.52% 4.09% 4.95%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $749,582 $756,510 $778,059 $759,732 $816,687 $742,274
Portfolio turnover 54% 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 During the period, certain fees were voluntarily waived or reimbursed and
expenses reduced by directed brokerage arrangements. If such voluntary waivers,
reimbursements, and expense reductions had not occurred, the ratios would have
been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.42 $14.08 $13.28 $12.77 $10.98 $10.92
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.14 0.28 0.30 0.44 0.43 0.22
Net realized and
unrealized gain (loss) on
investments and foreign
currency 0.47 0.63 2.53 1.21 1.77 (0.04)
TOTAL FROM
INVESTMENT OPERATIONS 0.61 0.91 2.83 1.65 2.20 0.18
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.13) (0.26) (0.30) (0.40) (0.41) (0.08)
Distributions from net
realized gain
on investments and foreign
currency transactions (0.68) (2.31) (1.73) (0.74) - -
Tax return of capital
distribution - - - - - (0.04)
TOTAL DISTRIBUTIONS (0.81) (2.57) (2.03) (1.14) (0.41) (0.12)
NET ASSET VALUE, END OF
PERIOD $12.22 $12.42 $14.08 $13.28 $12.77 $10.98
TOTAL RETURN 2 4.70% 6.18% 22.10% 13.60% 20.45% 2.16%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.98% 4 1.98% 2.00% 2.02% 2.04% 2.12% 4
Net investment income 3 2.17% 4 2.04% 2.15% 2.69% 3.05% 4.28% 4
Expenses (after waivers
and reimbursements) 1.98% 4 1.98% 1.90% 1.90% 1.90% 1.87% 4
Net investment income
(after waivers
and reimbursements) 2.17% 4 2.04% 2.25% 2.81% 3.19% 4.53% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $148,669 $142,858 $121,549 $101,619 $85,650 $18,780
Portfolio turnover 54% 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 During the period, certain fees were voluntarily waived or reimbursed and
expenses reduced by directed brokerage arrangements. If such voluntary waivers,
reimbursements, and expense reductions had not occurred, the ratios would have
been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.42 $14.07 $13.28 $12.77 $10.98 $12.23
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.14 0.28 0.31 0.42 0.39 0.42
Net realized and
unrealized gain (loss) on
investments and foreign
currency 0.46 0.64 2.51 1.23 1.80 (0.64)
TOTAL FROM
INVESTMENT OPERATIONS 0.60 0.92 2.82 1.65 2.19 (0.22)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.13) (0.26) (0.30) (0.40) (0.39) (0.60)
Distributions from net
realized gain
on investments and foreign
currency transactions (0.68) (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 (0.81) (2.57) (2.03) (1.14) (0.40) (1.03)
NET ASSET VALUE, END OF
PERIOD $12.21 $12.42 $14.07 $13.28 $12.77 $10.98
TOTAL RETURN 2 4.62% 6.25% 23.03% 13.58% 20.43% (1.66%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.98% 4 1.98% 2.00% 2.02% 2.04% 2.07%
Net investment income 3 2.17% 4 2.03% 2.15% 2.65% 3.18% 3.98%
Expenses (after waivers
and reimbursements) 1.98% 4 1.98% 1.90% 1.90% 1.87% 1.86%
Net investment income
(after waivers and
reimbursements) 2.17% 4 2.03% 2.25% 2.77% 3.35% 4.19%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $57,741 $58,012 $58,010 $58,196 $66,864 $56,800
Portfolio turnover 54% 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 During the period, certain fees were voluntarily waived or reimbursed and
expenses reduced by directed brokerage arrangements. If such voluntary waivers,
reimbursements, and expense reductions had not occurred, the ratios would have
been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28,
1999 1999 1998 1997 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $12.41 $14.07 $13.27 $12.37
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.19 0.39 0.43 0.42
Net realized and
unrealized gain (loss) on
investments and foreign
currency 0.47 0.63 2.51 1.20
TOTAL FROM INVESTMENT
OPERATIONS 0.66 1.02 2.94 1.62
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.18) (0.37) (0.41) (0.36)
Distributions from net
realized gain on
investments and foreign
currency transactions (0.68) (2.31) (1.73) (0.36)
TOTAL DISTRIBUTIONS (0.86) (2.68) (2.14) (0.72)
NET ASSET VALUE, END OF
PERIOD $12.21 $12.41 $14.07 $13.27
TOTAL RETURN 2 5.11% 6.99% 23.09% 13.39%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.23% 4 1.23% 1.25% 1.27% 4
Net investment income 3 2.93% 4 2.79% 2.90% 3.64% 4
Expenses (after waivers
and reimbursements) 1.20% 4 1.20% 1.12% 1.12% 4
Net investment income
(after waivers and
reimbursements) 2.96% 4 2.81% 3.03% 3.79% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $526,176 $558,020 $625,142 $662,182
Portfolio turnover 54% 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 During the period, certain fees were voluntarily waived or reimbursed and
expenses reduced by directed brokerage arrangements. If such voluntary waivers,
reimbursements, and expense reductions had not occurred, the ratios would have
been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999 (UNAUDITED)
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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
Listed corporate bonds, other fixed income securities, unlisted securities and
private placement securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Listed equity
securities are valued at the last sale price reported on a national securities
exchange. Short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the 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.
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 August 31, 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 Board of 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 August 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 250,000,000
Class B Shares 250,000,000
Class C Shares 250,000,000
Class F Shares 250,000,000
TOTAL 1,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,789,146 $ 22,751,640 10,264,994 $ 143,451,215
Shares issued to
shareholders in payment of
distributions declared 3,528,414 44,698,112 9,755,853 129,737,536
Shares redeemed (4,850,045) (61,741,427) (14,380,818) (200,184,276)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 467,515 $ 5,708,325 5,640,029 $ 73,004,475
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,614,720 $ 20,541,206 3,348,277 $ 46,162,492
Shares issued to
shareholders in payment of
distributions declared 633,245 8,028,673 1,616,455 21,467,469
Shares redeemed (1,578,665) (20,132,699) (2,099,423) (28,790,480)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 669,300 $ 8,437,180 2,865,309 $ 38,839,481
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 408,622 $ 5,188,219 543,318 $ 7,461,346
Shares issued to
shareholders in payment of
distributions declared 264,677 3,353,071 710,599 9,439,313
Shares redeemed (616,019) (7,828,053) (704,181) (9,690,530)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 57,280 $ 713,237 549,736 $ 7,210,129
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,088,807 $ 13,752,363 2,073,085 $ 28,805,862
Shares issued to
shareholders in payment of
distributions declared 2,329,460 29,514,643 6,762,966 89,758,602
Shares redeemed (5,269,320) (66,844,291) (8,327,923) (114,936,006)
NET CHANGE RESULTING FROM
CLASS F
SHARE TRANSACTIONS (1,851,053) $ (23,577,285) 508,128 $ 3,628,458
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (656,958) $ (8,718,543) 9,563,202 $ 122,682,543
</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 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 Federated Securities Corp.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services 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.
EXPENSE REDUCTION
The Fund directs certain portfolio trades to a broker that, inturn, pays a
portion of the Fund's operating expenses. For the six months ended August 31,
1999, the Fund's expenses were reduced by $32,529 under these arrangements.
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 August 31, 1999, were as follows:
Purchases $791,968,839
Sales $898,910,372
YEAR 2000
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.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
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
STEPHEN J. LEHMAN
Vice President
C. GRANT ANDERSON
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 prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
Federated Utility Fund, Inc.
Established 1988
12TH SEMI-ANNUAL REPORT
SEMI-ANNUAL REPORT
AS OF AUGUST 31, 1999
[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
8092606 (10/99)
[Graphic]
APPENDIX
A1. The graphic presentation displayed here is a 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 8/31/99. The "y" axis is
measured in increments of $10,000 ranging from $0 to $50,000 and indicates that
the ending value of hypothetical initial investment of $12,000 in the fund's
Class A Shares, assuming the reinvestment of capital gains and dividends, would
have grown to $45,972 on 8/31/99.
A2. The graphic presentation displayed here is a 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 8/31/99. The "y" axis is
measured in increments of $5,000 ranging from $0 to $30,000 and indicates that
the ending value of hypothetical yearly investments of $1,000 in the fund's
Class A Shares, assuming the reinvestment of capital gains and dividends, would
have grown to $24,787 on 8/31/99.
