UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-21488
Cohen & Steers Utility Fund, Inc.
(Exact name of registrant as specified in charter)
757 Third Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
Robert H. Steers
Cohen & Steers Capital Management, Inc.
757 Third Avenue
New York, New York 10017
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 832-3232
Date of fiscal year end: December 31
Date of reporting period: June 30, 2004
Item 1. Reports to Stockholders.
The registrant's semi-annual report to shareholders, for the period ended June
30, 2004 is included herein.
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures are
sufficient to ensure that information required to be disclosed by the registrant
in this Form N-CSR was recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange
Commission's rules and forms, based upon such officers' evaluation of these
controls and procedures as of a date within 90 days of the filing date of this
report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a) (2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act of 1940.
(b) Certifications of chief executive officer and chief financial officer as
required by Rule 30a-2(b) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COHEN & STEERS UTILITY FUND, INC.
By: /s/ Robert H. Steers
-------------------------------
Name: Robert H. Steers
Title: Chairman
Date: August 25, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert H. Steers By: /s/ Martin Cohen
-------------------------------------- ----------------------------------
Name: Robert H. Steers Name: Martin Cohen
Title: Chairman, Secretary Title: President, Treasurer
and principal executive officer and principal financial officer
Date: August 25, 2004
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COHEN & STEERS UTILITY FUND, INC.
July 26, 2004
To Our Shareholders:
We are pleased to submit to you our report for Cohen & Steers Utility Fund
for the period beginning with the fund's inception on April 30, 2004 through
June 30, 2004. The net asset values per share on June 30, 2004 were $12.06,
$12.03, and $12.04 for Class A, Class B, and Class C shares, respectively.
Class I shares had a net asset value of $12.06. The fund has not yet declared or
paid a dividend because this period represents a partial quarter of operations.
We expect to initiate a regular quarterly distribution in the third quarter
of 2004.
We established the fund with the goal of offering investors the opportunity
to invest in one of the highest yielding sectors in the equity markets and
participate in the potential for improving fundamentals in the utility industry.
We believe there will be a renewed focus on dividends due to increasing demand
for income as America ages and as a result of the reduced 15% tax rate on
qualifying dividends. Utilities are the highest yielding sector in the equity
market that qualifies for the new dividend tax rate.
Utilities have historically provided returns that are competitive with that
of the broader equity market, but with much lower market sensitivity. Other
potential advantages of owning utilities include low correlation to stocks and
bonds, portfolio diversification, and strong dividend growth stemming from the
improving financial profile of this sector. Our investment strategy is designed
to provide the attractive characteristics that traditional utility businesses
have historically provided: income with moderate growth potential and lower
volatility than the broader market. While there have been net outflows from some
open-end utility funds over the past several years, we believe that is explained
by poor performance and style drift by portfolio managers. We expect that there
will be growing demand for the characteristics of utilities going forward as
baby boomers begin asset allocation to income from growth.
INVESTMENT REVIEW
For the period from the fund's inception on April 30, 2004 through the end
of the second quarter, Cohen & Steers Utility Fund had a return, based on change
in net asset value, of 5.2% for the Class A shares. Class B, C and I Shares
returned 5.0%, 5.1%, and 5.2%, respectively. This compares favorably to the S&P
Utilities Index total return of 2.5% over the same period. Fund performance
information does not take into account sales loads or contingent deferred sales
charges, if any.
Utility shares slightly underperformed the broader stock market equity
market averages during the quarter due to concerns about how utilities will
perform if the improvement in the economy is accompanied by rising interest
rates. For the period, utilities had a 2.5% total return compared to 3.3% for
the S&P 500 and -0.01% for bonds. Year to date, utilities have performed
slightly better than the broader equity markets. As we discuss more fully in the
'Investment Outlook' section, we believe that several positive trends leave the
sector well positioned to provide investors with potentially attractive current
income and capital appreciation.
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COHEN & STEERS UTILITY FUND, INC.
The integrated natural gas sector was the best performing group during the
period with a 5.6% total return. Integrated natural gas utilities distribute
natural gas to residential, commercial and industrial customers through
state-regulated local distribution utilities, develop new natural gas reserves
through unregulated exploration and production, and operate federally regulated
natural gas pipelines. Integrated natural gas companies continue to benefit from
strong natural gas and crude oil pricing which leads to higher profits in the
exploration and production business. Driven by strong demand and supply
disruptions, over the last year the price of crude oil has increased 23% to
$37.05 per barrel while the price of natural gas has risen 14% to $6.16 per
MMBtu over the same period. Natural gas distribution utilities, which are
primarily engaged in the state regulated distribution of natural gas, were
helped by their modest exposure to exploration and production and produced 4.4%
total return. Integrated electric utilities, which generate, transmit and
distribute electricity through regulated and unregulated companies, had a total
return of 3.1% during the period. As a more interest-rate-sensitive sector,
electric distribution utility share prices were hurt by concern over rising
rates, resulting in a total return of 0.9%.
The portfolio benefited from an overweight position in the natural gas
sectors and an underweight position in the integrated electric sector. Our
overweight position in the electric distribution sector detracted from
performance. Stock selection within all sectors added to performance. TXU Corp.
was the most significant contributor to the fund's performance, with a 19.1%
total return over the period. Following several years of poor stock price
performance due to poor management and disappointing unregulated investments,
TXU shares rose following the appointment of a new, highly respected CEO and his
announcement of a broad restructuring program that we believe may potentially
increase earnings and dividends, reduce debt, and lower the overall risk profile
of the company. Equitable Resources was another strong contributor to
performance with a 10.9% total return. Laggards during the period included
Public Service Enterprise Group and FirstEnergy Corp., which had total returns
of -5.4% and -3.4%, respectively. Our 17% allocation to preferred
securities, which are used to enhance the portfolio's income potential and
dampen portfolio volatility, detracted from relative performance due to the rise
in interest rates.
INVESTMENT OUTLOOK
We believe the utility sector is poised for a period of sustained recovery
after several challenging years. Beginning in the late 1990s, many utilities
made significant investments in unregulated businesses, mainly merchant power
plants. An aggressive industry-wide construction trend led to a severe
oversupply of the power plants. Unlike the regulated utility business, where
power prices are set by state regulation, the supply/demand imbalance in the
wholesale market led to a collapse in wholesale power prices and financial
troubles for utilities that were unable to service the debt used to fund their
construction programs.
Many utilities have moved aggressively to exit poorly performing unregulated
investments and refocus on improving the operating efficiencies of their core
regulated utility franchises. At the same time, many companies have made
substantial progress in strengthening balance sheets and free cash flow. Balance
sheets are getting stronger after the issuance of over $50 billion in equity
over the last three years, a meaningful amount for a sector with $375 billion in
total equity market capitalization. We also believe the cash flow profile of
most utilities is
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COHEN & STEERS UTILITY FUND, INC.
improving dramatically with the decline in unregulated capital expenditures. For
the first time in many years the utility sector is projected to turn free cash
flow positive in 2004.
With an improving cash flow profile, declining business risk and relatively
low dividend payout ratios, we believe that managements now have the flexibility
to continue dividend growth after several years of declining dividend payments.
Several utilities raised their dividends substantially over the last year, and
we believe this trend will continue. For the year ended March 31, 2004, 40
companies out of 69 dividend-paying gas and electric utilities raised their
dividends by an average of 8.6%. Only two companies lowered their dividends
during this period. We expect continued strong dividend growth in the sector.
The average utility dividend payout ratio, 59% currently, is low relative to the
long-term historical average of 70%.
We have concentrated our portfolio in companies that we believe have the
potential for above-average growth in earnings and dividends. We are focusing on
the more highly regulated utilities that have above-average credit quality (all
but one of the companies in our portfolio have investment grade senior debt
ratings). Companies with these characteristics offer the potential for greater
stability of earnings and dividends, in our view. These businesses include
regulated and integrated electric and gas utilities and natural gas pipelines.
We do not have a focus on sectors such as telecommunications and independent
power producers because we believe that their business models and industry
fundamentals will result in greater volatility of earnings and cash flows. We
have a modest allocation to companies that have positive earnings sensitivity
from high natural gas and crude oil prices through: a) natural gas utilities
engaged in exploration and production, and b) electric utilities with coal and
nuclear generation that benefit from high natural gas prices.
The nature of state and federal regulation is an important factor to
consider when evaluating utility investments. We believe utilities' earnings
growth stands to benefit from a constructive regulatory environment in several
ways. On the heels of the California energy crisis, many state regulators are
working proactively with electric utilities with the goal of ensuring price
stability for customers through the extension of positive rate orders. In
another positive trend, regulators have supported utilities' efforts to move
unregulated power plants into the regulated asset base where utilities can have
the ability to earn more attractive and stable financial returns on their
capital investments. Many state regulators have also allowed utilities to
incorporate the costs of environmental upgrades to coal fired power plants in
customer rates. Following the August 2003 blackout in the Northeast, we
anticipate that regulation designed to promote the enhancement of the electric
transmission grid will provide attractive investment opportunities for
utilities. The sector should also profit from the need to invest in the natural
gas infrastructure in areas such as pipelines, storage, and liquefied natural
gas terminals.
Industry participants have debated how utilities will perform if the
improvement in the economy is accompanied by rising interest rates. In our view,
there is a misconception that utility stocks will lag the market if interest
rates move higher. The historical data show that utilities have exhibited a very
low correlation to 10-year Treasury bonds. For the ten years ended May 31, this
correlation was a mere 0.16. We believe that in periods when utilities have
reacted poorly to rising rates, the performance was largely driven by very
negative sector-specific factors. Some examples include: the energy crisis of
the early 1970s, when most utilities suffered from the lack of a
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COHEN & STEERS UTILITY FUND, INC.
fuel cost pass through mechanism that most companies now enjoy; the early 1990s
onset of deregulation, when there was widespread fear that the industry would
experience profit erosion under competition; and the stock market bubble of the
late 1990s when utilities performed poorly along with other value and income
oriented sectors. Excluding these periods, the utility sector has generally
performed in line with the stock market during periods of rising interest rates.
It is also important to remember that rising interest rates reflect
improving economic conditions that should benefit utilities through growing
demand for energy. Further, higher interest rates may actually help utilities in
that most state regulators set customer rates based partly upon prevailing
interest rates. Given the positive fundamental, financial and regulatory
developments occurring throughout the industry, we believe that utility stocks
may perform better than anticipated if interest rates rise.
While many investors are already attracted to the relatively high average
yield on dividend paying utility stocks, we believe the sector should further
benefit from its position as the highest yielding sector in the S&P 500 that
qualifies for the new tax rate on dividends. The Jobs and Growth Tax Relief
Reconciliation Act of 2003 lowered the federal tax rate on qualified dividend
income to a maximum of 15%, down from a prior top rate of 38.6%. Given the
sector's attractive fundamentals, favorable regulation, and improving financial
performance, we expect utilities to be one of the main beneficiaries of aging
baby boomers' demand for more conservative income-producing equity investments.
Consequently, we believe the fund is well positioned to deliver attractive
current income and capital appreciation over time.
Sincerely,
MARTIN COHEN ROBERT H. STEERS
MARTIN COHEN ROBERT H. STEERS
President Chairman
ROBERT BECKER WILLIAM F. SCAPELL
ROBERT BECKER WILLIAM F. SCAPELL
Portfolio Manager Portfolio Manager
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COHEN & STEERS UTILITY FUND, INC.
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Cohen & Steers is online at cohenandsteers.com
We have enhanced both the look and features of our Web site
to give you more information about our company and our
funds.
ONLINE ACCESS is available for shareholders of Cohen &
Steers funds whose accounts are held directly with Boston
Financial Data Services, the fund's transfer agent. After
registering, you will be able to manage your entire account
online including purchasing or redeeming shares, updating
account information, and checking your portfolio holdings.
Try the Fund Performance Calculator and see how our funds
have performed versus the S&P 500 Index or Nasdaq composite.
As always, you can also get daily net asset values, fund
fact sheets, portfolio highlights and recent news articles.
So visit us today at cohenandsteers.com
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COHEN & STEERS UTILITY FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD(a)
--------- ---------- ------------
COMMON STOCK 78.60%(b)
UTILITIES 78.60%
ELECTRIC -- INTEGRATED 52.98%
Ameren Corp................................ 2,179 $ 93,610 5.91%
American Electric Power Co................. 1,399 44,768 4.38
Cinergy Corp............................... 2,154 81,852 4.95
DTE Energy Co.............................. 1,345 54,526 5.08
Dominion Resources......................... 2,436 153,663 4.09
Duke Energy Corp. ......................... 4,580 92,928 5.42
Edison International....................... 4,448 113,735 3.13
Entergy Corp............................... 2,638 147,754 3.21
Exelon Corp................................ 5,138 171,044 3.30
FirstEnergy Corp........................... 2,815 105,309 4.01
FPL Group.................................. 770 49,242 3.88
Hawaiian Electric Industries............... 1,464 38,210 4.75
Pinnacle West Capital Corp. ............... 1,528 61,716 4.46
PPL Corp. ................................. 2,483 113,970 3.57
Progress Energy............................ 2,199 96,866 5.22
Public Service Enterprise Group............ 1,376 55,081 5.50
Puget Energy............................... 1,162 25,459 4.56
SCANA Corp................................. 54 1,964 4.01
Scottish Power plc (ADR)(c)................ 1,959 57,810 4.33
Southern Co. .............................. 4,528 131,991 4.80
TXU Corp. ................................. 4,107 166,375 1.23
Xcel Energy................................ 3,598 60,123 4.97
----------
1,917,996
----------
ELECTRIC -- DISTRIBUTION 4.11%
Consolidated Edison........................ 1,509 59,998 5.68
Energy East Corp. ......................... 1,540 37,345 4.29
NSTAR...................................... 500 23,940 4.64
Pepco Holdings............................. 1,513 27,658 5.47
----------
148,941
----------
</Table>
- -------------------
(a) Dividend yield is computed by dividing the security's current annual
dividend rate by the last sale price on the principal exchange, or market,
on which such security trades.
(b) Percentages indicated are based on the net assets of the fund.
(c) American Depository Receipt.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- ---------- ------------
GAS -- DISTRIBUTION 4.62%
AGL Resources.............................. 2,002 $ 58,158 3.99%
Atmos Energy Corp. ........................ 663 16,973 4.77
NiSource................................... 2,862 59,014 4.46
Vectren Corp. ............................. 1,324 33,219 4.54
----------
167,364
----------
GAS -- INTEGRATED 16.89%
Energen Corp. ............................. 1,000 47,990 1.54
Equitable Resources........................ 3,072 158,853 2.94
KeySpan Corp. ............................. 1,370 50,279 4.85
Kinder Morgan.............................. 1,520 90,121 3.79
Questar Corp............................... 4,078 157,574 2.23
Sempra Energy.............................. 3,105 106,905 2.90
----------
611,722
----------
TOTAL UTILITIES............................ 2,846,023
----------
TOTAL COMMON STOCK (Identified cost --
$2,755,411)............................ 2,846,023
----------
PREFERRED SECURITIES -- $25 PAR VALUE 16.76%
FINANCE 0.92%
MBNA Capital, 8.125%, Series D (TruPS)(d).. 1,300 33,410 7.90
----------
MEDIA 3.90%
CABLE TELEVISION 2.57%
Shaw Communications, 8.45%, Series A
(COPrS)(e)............................... 2,050 51,455 8.42
Shaw Communications, 8.50%, Series B
(COPrS)(e)............................... 1,650 41,382 8.47
----------
92,837
----------
DIVERSIFIED SERVICES 1.33%
Liberty Media Corp., 8.75% (PPLUS)(f)...... 1,800 48,240 8.19
----------
TOTAL MEDIA................................ 141,077
----------
</Table>
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(d) (TruPS) Trust Preferred Securities.
(e) (COPrS) Canadian Origin Preferred Securities.
(f) (PPLUS) Preferred Plus Trust.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
<Caption>
NUMBER VALUE DIVIDEND
OF SHARES (NOTE 1) YIELD
--------- ---------- ------------
REAL ESTATE 7.97%
Alexandria Real Estate Equities, 8.375%,
Series C................................. 500 $ 12,750 8.21%
Bedford Property Investors, 7.625%,
Series B................................. 800 19,200 7.94
CBL & Associates Properties, 7.75%,
Series C................................. 900 22,761 7.66
CRT Properties, 8.50%, Series A............ 1,800 46,260 8.27
Health Care REIT, 7.875%, Series D......... 200 5,010 7.86
Maguire Properties, 7.625%, Series A....... 1,750 42,263 7.89
Mills Corp., 9.00%, Series C............... 1,000 26,525 8.52
Mills Corp., 8.75%, Series E............... 300 7,863 8.35
PS Business Parks, 7.00%, Series H......... 1,250 28,188 7.76
PS Business Parks, 7.95%, Series K......... 400 9,980 7.97
Saul Centers, 8.00%, Series A.............. 500 12,750 7.84
SL Green Realty Corp., 7.875%, Series D.... 2,200 55,000 7.88
----------
288,550
----------
UTILITIES 3.97%
ELECTRIC -- INTEGRATED 3.39%
EIX Trust I, 7.875%, Series A.............. 3,550 89,034 7.85
Energy East Capital Trust I, 8.25%......... 1,300 33,930 7.90
----------
122,964
----------
GAS -- DISTRIBUTION 0.58%
AGL Capital Trust II, 8.00% (TruPS)(a)..... 800 20,912 7.65
----------
TOTAL UTILITIES............................ 143,876
----------
TOTAL PREFERRED SECURITIES -- $25 PAR
VALUE (Identified cost -- $601,448)... 606,913
----------
TOTAL INVESTMENTS (Identified cost --
$3,356,859)............................ 95.36% 3,452,936
OTHER ASSETS IN EXCESS OF LIABILITIES..... 4.64% 167,942
______ ----------
NET ASSETS................................100.00% $3,620,878
====== ==========
</Table>
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(a) (TruPS) Trust Preferred Securities.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004 (UNAUDITED)
<Table>
ASSETS:
Investments in securities, at value (Identified
cost -- $3,356,859) (Note 1)......................... $3,452,936
Cash.................................................... 92,825
Receivable for fund shares sold......................... 243,218
Receivable for investments sold......................... 23,727
Dividends and interest receivable....................... 5,881
Receivable due from advisor............................. 81,313
----------
Total Assets....................................... 3,899,900
----------
LIABILITIES:
Payable for investment securities purchased............. 217,790
Payable for professional fees........................... 18,463
Payable for reports to shareholders..................... 15,729
Payable for fund shares redeemed........................ 10,194
Payable to administrator................................ 6,627
Payable to investment advisor........................... 1,572
Payable for distribution fees........................... 682
Payable for shareholder servicing fees.................. 238
Other liabilities....................................... 7,727
----------
Total Liabilities.................................. 279,022
----------
NET ASSETS.................................................. $3,620,878
----------
----------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 5)......................... $3,514,026
Undistributed net investment income..................... 8,571
Accumulated net realized gain on investments............ 2,204
Net unrealized appreciation on investments.............. 96,077
----------
$3,620,878
----------
----------
</Table>
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES -- (CONTINUED)
JUNE 30, 2004 (UNAUDITED)
<Table>
CLASS A SHARES:
NET ASSETS.............................................. $1,103,609
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 5).......................... 91,531
----------
Net asset value and redemption price per share.......... $ 12.06
----------
----------
Maximum offering price per share ($12.06[div]0.955)(a).. $ 12.63
----------
----------
CLASS B SHARES:
NET ASSETS.............................................. $ 301,877
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 5).......................... 25,090
----------
Net asset value and offering price per share(b)......... $ 12.03
----------
----------
CLASS C SHARES:
NET ASSETS.............................................. $1,154,776
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 5).......................... 95,934
----------
Net asset value and offering price per share(b)......... $ 12.04
----------
----------
CLASS I SHARES:
NET ASSETS.............................................. $1,060,616
Shares issued and outstanding ($0.001 par value common
stock outstanding) (Note 5).......................... 87,959
----------
Net asset value, offering and redemption value per
share................................................ $ 12.06
----------
----------
</Table>
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(a) On investments of $100,000 or more, the offering price is reduced.
(b) Redemption price per share is equal to the net asset value per share less
any applicable deferred sales charge which varies with the length of time
shares are held.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD APRIL 30, 2004(c) THROUGH JUNE 30, 2004 (UNAUDITED)
<Table>
Investment Income (Note 1):
Dividend income......................................... $ 12,698
Interest income......................................... 60
--------
Total Income....................................... 12,758
--------
Expenses:
Shareholder reporting expenses.......................... 25,361
Professional fees....................................... 18,803
Administration and transfer agent fees (Note 2)......... 12,979
Directors' fees and expenses (Note 2)................... 10,187
Custodian fees and expenses............................. 7,884
Registration and filing fees............................ 5,100
Investment advisory fees (Note 2)....................... 2,130
Distribution fees -- Class A (Note 2)................... 167
Distribution fees -- Class B (Note 2)................... 110
Distribution fees -- Class C (Note 2)................... 405
Shareholder servicing fees -- Class A (Note 2).......... 67
Shareholder servicing fees -- Class B (Note 2).......... 37
Shareholder servicing fees -- Class C (Note 2).......... 135
Line of credit fees (Note 6)............................ 135
Miscellaneous........................................... 2,000
--------
Total Expenses..................................... 85,500
Reduction of Expenses (Note 2).......................... (81,313)
--------
Net Expenses....................................... 4,187
--------
Net Investment Income....................................... 8,571
--------
Net Realized and Unrealized Gain on Investments:
Net realized gain on investments........................ 2,204
Net change in unrealized appreciation on investments.... 96,077
--------
Net realized and unrealized gain on investments.... 98,281
--------
Net Increase in Net Assets Resulting from Operations........ $106,852
--------
--------
</Table>
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(c) Commencement of Operations.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<Table>
<Caption>
FOR THE PERIOD
APRIL 30, 2004(a)
THROUGH
JUNE 30, 2004
----------------
Change in Net Assets:
From Operations:
Net investment income.............................. $ 8,571
Net realized gain on investments................... 2,204
Net change in unrealized appreciation on
investments..................................... 96,077
----------
Net increase in net assets resulting from
operations.................................. 106,852
----------
Capital Stock Transactions (Note 5):
Increase in net assets from fund share
transactions.................................... 3,413,751
----------
Total increase in net assets.................. 3,520,603
Net Assets:
Beginning of period................................ 100,275
----------
End of period(b)................................... $3,620,878
----------
----------
</Table>
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(a) Commencement of Operations.
(b) Includes undistributed net investment income of $8,571 at June 30, 2004.
See accompanying notes to financial statements.
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COHEN & STEERS UTILITY FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
The following table includes selected data for a share outstanding
throughout the period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS I
--------------- --------------- --------------- ---------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
APRIL 30, 2004(b) APRIL 30, 2004(b) APRIL 30, 2004(b) APRIL 30, 2004(b)
THROUGH THROUGH THROUGH THROUGH
PER SHARE OPERATING PERFORMANCE: JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004 JUNE 30, 2004
- -------------------------------- ------------- --------------- ------------- ---------------
Net asset value, beginning of
period........................... $ 11.46 $ 11.46 $ 11.46 $ 11.46
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income.......... 0.06(c) 0.06(c) 0.05(c) 0.06(c)
Net realized and unrealized
gain on investments.......... 0.54 0.51 0.53 0.54
----------- ----------- ----------- -----------
Total from investment
operations............... 0.60 0.57 0.58 0.60
----------- ----------- ----------- -----------
Net increase in net asset
value.................... 0.60 0.57 0.58 0.60
----------- ----------- ----------- -----------
Net asset value, end of period..... $ 12.06 $ 12.03 $ 12.04 $ 12.06
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
==============================================================================================================
Total investment return(d)......... 5.24%(e) 4.97%(e) 5.06%(e) 5.24%(e)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
- -------------------------
Net assets, end of period
(in millions).................... $ 1.1 $ 0.3 $ 1.2 $ 1.1
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Ratio of expenses to average daily
net assets (before expense
reduction) (See Note 2).......... 30.21%(f) 30.86%(f) 30.86%(f) 29.87%(f)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Ratio of expenses to average daily
net assets (net of expense
reduction)....................... 1.50%(f) 2.15%(f) 2.15%(f) 1.15%(f)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Ratio of net investment income to
average daily net assets (before
expense reduction) (See Note 2).. -25.68%(f) -25.69%(f) -25.89%(f) -25.62%(f)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Ratio of net investment income to
average daily net assets (net of
expense reduction)............... 3.04%(f) 3.02%(f) 2.82%(f) 3.10%(f)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Portfolio turnover rate............ 4.11%(e) 4.11%(e) 4.11%(e) 4.11%(e)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</Table>
- -------------------
(b) Commencement of Operations.
(c) Calculation based on average shares outstanding.
(d) Does not reflect sales charges, which would reduce return.
(e) Not annualized.
(f) Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
13
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Utility Fund, Inc. (the fund) was incorporated under the laws
of the State of Maryland on January 13, 2004 and is registered under the
Investment Company Act of 1940, as amended, as an open-end, nondiversified
management investment company. The fund had no operations until March 19, 2004
when it sold 10 shares each of Class A, B, C, and 8,720 shares of Class I for
$100,275 to Cohen & Steers Capital Management, Inc. Investment operations
commenced on April 30, 2004. There are 200,000,000 shares of $0.01 par value
common stock authorized which are divided into four classes designated Class A,
B, C, and I shares. Each of the fund's shares has equal dividend, liquidation
and voting rights (except for matters relating to distributions and shareholder
servicing of such shares).
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in the
United States of America. The preparation of the financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day. Securities not listed on the New York Stock Exchange but listed on
other domestic or foreign securities exchanges or admitted to trading on the
National Association of Securities Dealers Automated Quotations, Inc. (Nasdaq)
national market system are valued in a similar manner. Securities traded on more
than one securities exchange are valued at the last sale price on the business
day as of which such value is being determined as reflected on the tape at the
close of the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Cohen &
Steers Capital Management, Inc. to be over-the-counter, but excluding securities
admitted to trading on the Nasdaq national list, are valued at the official
closing prices as reported by Nasdaq, the National Quotation Bureau, or such
other comparable sources as the board of directors deems appropriate to reflect
their fair market value. Where securities are traded on more than one exchange
and also over-the-counter, the securities will generally be valued using the
quotations the board of directors believes most closely reflect the value of
such securities.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost, which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost. Interest income is recorded on the
- --------------------------------------------------------------------------------
14
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
accrual basis. Dividend income is recorded on the ex-dividend date. The fund
records distributions received in excess of income from underlying investments
as a reduction of cost of investments and/or realized gain. Such amounts are
based on estimates if actual amounts are not available, and actual amounts of
income, realized gain and return of capital may differ from the estimated
amounts. The fund adjusts the estimated amounts of the components of
distributions (and consequently its net investment income) as an increase to
unrealized appreciation/(depreciation) on investment as necessary once the
issuers provide information about the actual composition of the distributions.
Income, expenses (other than expenses attributable to a specific class), and
realized and unrealized gains or losses on investments are allocated to each
class of shares based on its relative net assets. Class B shares automatically
convert to Class A shares at the end of the month which precedes the eighth
anniversary of the purchase date.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. Distributions to shareholders are
recorded on the ex-dividend date. Dividends are automatically reinvested in full
and fractional shares of the fund based on the net asset value per share at the
close of business on the ex-dividend date unless the shareholder has elected to
have them paid in cash.
A portion of the fund's dividend may consist of amounts in excess of net
investment income derived from nontaxable components of the dividends from the
fund's portfolio investments. Net realized capital gains, unless offset by any
available capital loss carryforward, are distributed to shareholders annually.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. federal income tax regulations, which may differ from
generally accepted accounting principles.
Federal Income Taxes: It is the policy of the fund to qualify as a regulated
investment company, if such qualification is in the best interest of the
shareholders, by complying with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies, and by distributing
substantially all of its taxable earnings to its shareholders. Accordingly, no
provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
advisor) serves as the fund's investment advisor pursuant to an investment
advisory agreement (the advisory agreement). Under the terms of the advisory
agreement, the advisor provides the fund with the day-to-day investment
decisions and generally manages the fund's investments in accordance with the
stated policies of the fund, subject to the supervision of the fund's board of
directors. For the services provided to the fund, the advisor receives a monthly
management fee in an amount equal to 1/12th of 0.75% of the average daily net
assets of the fund up to and including $1.5 billion and 0.65% of the average
daily net asset above $1.5 billion. For the period April 30, 2004 (commencement
of operations) though June 30, 2004, the fund incurred $2,130 in advisory fees.
Through December 31, 2004, the advisor has contractually agreed to waive its
fee and/or reimburse the fund for expenses incurred to the extent necessary to
maintain the fund's operating expenses at 1.50% for the Class A
- --------------------------------------------------------------------------------
15
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
shares, 2.15% for the Class B shares and Class C shares and 1.15% for the
Class I shares. For the period April 30, 2004 (commencement of operations)
through June 30, 2004, expenses totalling $81,313 were reduced under this
agreement.
Administration Fees: The fund has entered into an administration agreement
with the advisor under which the advisor performs certain administrative
functions for the fund and receives a fee of 0.02% of the fund's average daily
net assets. For period April 30, 2004 (commencement of operations) though June
30, 2004, the fund paid the advisor $57 in fees under this administration
agreement.
Distribution Fees: Cohen & Steers Securities, LLC (the distributor), an
affiliated entity of Cohen & Steers Capital Management, Inc., distributes the
shares of the fund. The fund has adopted a distribution plan (the plan) on
behalf of the fund pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the plan, the fund may not incur distribution fees which exceed an
annual rate of 0.25% of the average daily net assets attributable to the Class A
shares and 0.75% of the average daily net assets attributable to the Class B and
Class C shares. For the period April 30, 2004 (commencement of operations)
though June 30, 2004, the fund paid $682 in fees under the plan. For the period
April 30, 2004 (commencement of operations) through June 30, 2004, the
distributor received $1,139 in sales commissions from the sale of Class A
shares. The distributor also received $0 and $227 of contingent deferred sales
charges relating to redemptions of Class B and Class C shares, respectively. The
Distributor has advised the Fund that proceeds from the contingent deferred
sales charge on the Class B & C shares are paid to the distributor and are used
by the distributor to defray its expenses related to providing
distribution-related services to the fund in connection with the sale of the
Class B & C shares, including payments to dealers and other financial
intermediaries for selling Class B & C shares and interest and other financing
costs of associated with Class B & C shares.
Shareholder Servicing Fees: The fund has adopted a shareholder services plan
which provides that the fund may obtain the services of qualified financial
institutions to act as shareholder servicing agents for their customers. For
these services, the fund may pay the shareholder servicing agent a fee at an
annual rate of up to 0.10% of the average daily net asset value of the fund's
Class A shares and up to 0.25% of the average daily net asset value of the
fund's Class B and C shares. For the period April 30, 2004 (commencement of
operations) though June 30, 2004, the fund paid $239 under the shareholder
servicing plan.
Directors' Fees: Certain directors and officers of the fund are also
directors, officers, and/or employees of the advisor. None of the directors and
officers so affiliated received compensation from the fund for their services.
For the period April 30, 2004 (commencement of operations) though June 30, 2004,
fees and related expenses accrued for nonaffiliated directors totaled $10,187.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for the
period ended June 30, 2004 totaled $3,462,679 and $107,174, respectively.
- --------------------------------------------------------------------------------
16
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 4. INCOME TAXES
At June 30, 2004 the cost of investments and net unrealized appreciation for
federal income tax purposes were as follows:
<Table>
Aggregate cost................................... $ 3,356,859
--------------
--------------
Gross unrealized appreciation.................... $ 100,216
Gross unrealized depreciation.................... $ (4,139)
--------------
Net unrealized appreciation...................... $ 96,077
--------------
--------------
</Table>
NOTE 5. CAPITAL STOCK
The fund is authorized to issue 200 million shares of capital stock, par
value $0.001 per share. The board of directors of the fund may increase or
decrease the aggregate number of shares of common stock that the fund has
authority to issue. Transactions in fund shares were as follows:
<Table>
<Caption>
FOR THE PERIOD
APRIL 30, 2004
(COMMENCEMENT OF OPERATIONS)
THOUGH JUNE 30, 2004
-------------------------------
SHARES AMOUNT
-------------- --------------
CLASS A:
Sold...................................... 92,429 $1,088,042
Redeemed.................................. (908) (10,950)
------ ----------
Net increase.............................. 91,521 $1,077,092
------ ----------
------ ----------
CLASS B:
Sold...................................... 25,080 $ 296,864
------ ----------
Net increase.............................. 25,080 $ 296,864
------ ----------
------ ----------
CLASS C:
Sold...................................... 97,901 $1,155,667
Redeemed.................................. (1,977) (23,372)
------ ----------
Net increase.............................. 95,924 $1,132,295
------ ----------
------ ----------
CLASS I:
Sold...................................... 79,239 $ 907,500
------ ----------
Net increase.............................. 79,239 $ 907,500
------ ----------
------ ----------
</Table>
- --------------------------------------------------------------------------------
17
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 6. BORROWINGS
The fund, in conjunction with Cohen & Steers Institutional Realty Shares,
Inc., Cohen & Steers Realty Shares, Inc., Cohen & Steers Special Equity Fund,
Inc., Cohen & Steers Equity Income Fund, Inc., and Cohen & Steers Total Return
Realty Fund, Inc. has entered into a $200,000,000 credit agreement (the credit
agreement) with Fleet National Bank, as administrative agent, State Street Bank
and Trust Company, as operations agent, and the lenders identified in the credit
agreement. During the period April 30, 2004 (commencement of operations) through
June 30, 2004, the fund did not utilize the line of credit. For the period
April 30, 2004 (commencement of operations) through June 30, 2004, the fund paid
commitment fees of $135.
- --------------------------------------------------------------------------------
18
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
TOTAL RETURNS -- CLASS A(a)
(PERIOD ENDED JUNE 30, 2004) (UNAUDITED)
<Table>
<Caption>
SINCE INCEPTION (4/30/04)
----------------------------------------------
INCLUDING EXCLUDING
SALES CHARGE SALES CHARGE
---------------------- ----------------------
0.50% 5.24%
</Table>
Returns on the fund's other share classes will vary because of differing expense
ratios and sales charges.
The performance data quoted represents past performance. Past performance is no
guarantee of future results. The rate of return will vary and the principal
value of an investment will fluctuate and shares, if redeemed, may be worth more
or less than their original cost. Current performance may be lower or higher
than the performance data quoted. Total returns of the fund current to the most
recent month-end can be obtained by calling 1-800-330-7348 or by visiting
cohenandsteers.com.
- -------------------------------------------------------------------
A description of the policies and procedures that the fund
uses to determine how to vote proxies relating to portfolio
securities is available (i) without charge, upon request, by
calling 1-800-330-7348, (ii) on our Web site at
cohenandsteers.com or (iii) on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
- -------------------------------------------------------------------
- -------------------
(a) Based on net asset value.
- --------------------------------------------------------------------------------
19
<Page>
- --------------------------------------------------------------------------------
COHEN & STEERS UTILITY FUND, INC.
<Table>
MEET THE COHEN & STEERS FAMILY OF OPEN-END FUNDS:
FOR HIGH CURRENT INCOME: FOR TOTAL RETURN:
COHEN & STEERS COHEN & STEERS
EQUITY INCOME FUND REALTY SHARES
IDEAL FOR INVESTORS SEEKING A HIGH DIVIDEND IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL
YIELD AND CAPITAL APPRECIATION, INVESTING RETURN THROUGH BOTH CURRENT INCOME AND
PRIMARILY IN REITS CAPITAL APPRECIATION, INVESTING PRIMARILY IN
A, B, C AND I SHARES AVAILABLE REITS
SYMBOLS: CSEIX, CSBIX, CSCIX, CSDIX SYMBOL: CSRSX
ALSO AVAILABLE: COHEN & STEERS INSTITUTIONAL
REALTY SHARES (CSRIX) REQUIRES A HIGHER
MINIMUM PURCHASE, BUT OFFERS A LOWER TOTAL
EXPENSE RATIO
FOR TOTAL RETURN: FOR CAPITAL APPRECIATION:
COHEN & STEERS COHEN & STEERS
UTILITY FUND SPECIAL EQUITY SHARES
IDEAL FOR INVESTORS SEEKING MAXIMUM TOTAL IDEAL FOR INVESTORS SEEKING MAXIMUM CAPITAL
RETURN THROUGH BOTH CURRENT INCOME AND APPRECIATION, INVESTING IN A LIMITED NUMBER
CAPITAL APPRECIATION, INVESTING PRIMARILY IN OF REITS AND OTHER REAL ESTATE COMPANIES
UTILITIES CONCENTRATED, HIGHLY FOCUSED PORTFOLIO
SYMBOLS: CSUAX, CSUBX, CSUCX, CSUIX SYMBOL: CSSPX
FOR MORE INFORMATION ABOUT ANY COHEN & STEERS FUND
OR TO OBTAIN A PROSPECTUS PLEASE CONTACT US AT:
1-800-330-7348, OR VISIT OUR WEB SITE AT COHENANDSTEERS.COM
PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE FUND CAREFULLY BEFORE
INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER INFORMATION ABOUT THE FUND MAY BE OBTAINED BY
FOLLOWING THE INSTRUCTIONS ABOVE. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
</Table>
- --------------------------------------------------------------------------------
20
<Page>
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COHEN & STEERS UTILITY FUND, INC.
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISOR
Director and chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and president (212) 832-3232
Bonnie Cohen SUBADMINISTRATOR AND CUSTODIAN
Director State Street Bank and Trust Company
225 Franklin Street
George Grossman Boston, MA 02110
Director
TRANSFER AGENT
Richard J. Norman Boston Financial Data Services, Inc.
Director 66 Brooks Drive
Braintree, MA 02184
Willard H. Smith Jr. (800) 437-9912
Director
LEGAL COUNSEL
Robert Becker Simpson Thacher & Bartlett LLP
Vice president 425 Lexington Avenue
New York, NY 10017
Adam Derechin
Vice president and assistant treasurer DISTRIBUTOR
Cohen & Steers Securities, LLC
Joseph M. Harvey 757 Third Avenue
Vice president New York, NY 10017
William F. Scapell Nasdaq Symbol: Class A - CSUAX
Vice president Class B - CSUBX
Class C - CSUCX
Lawrence B. Stoller Class I - CSUIX
Assistant secretary
Web site: cohenandsteers.com
Net asset value (NAV) can be found in
the daily mutual fund listings in the
financial section of most major
newspapers under Cohen & Steers.
This report is authorized for delivery
only to shareholders of Cohen & Steers
Utility Fund, Inc. unless accompanied or
preceded by the delivery of a currently
effective prospectus setting forth
details of the fund. Past performance is
of course no guarantee of future results
and your investment may be worth more or
less at the time you sell.
- --------------------------------------------------------------------------------
21
COHEN & STEERS
UTILITY FUND
757 THIRD AVENUE
NEW YORK, NY 10017
COHEN & STEERS
- --------------
UTILITY FUND
- ----------------------
SEMIANNUAL REPORT
JUNE 30, 2004
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as ................................'SS'
The division sign shall be expressed as .................................[div]