[LOGO] FEDERATED INVESTORS
FORTRESS
UTILITY
FUND, INC.
8TH Annual Report
May 31, 1995
Established 1987
EQUITY
President's Message
[PHOTO]
Dear Fellow Shareholder:
Fortress Utility Fund, Inc. was established in 1987, and I am pleased to
present the 8th Annual Report to shareholders.
This report covers the 12-month period from June 1, 1994 to May 31, 1995. It
contains an interview with the fund's portfolio manager, Christopher H. Wiles,
Vice President of Federated Management. Following the interview is a series of
investment record performance charts, a complete listing of the fund's
portfolio of good dividend-paying utility stocks, convertible securities and
adjustable-rate preferreds, and its Financial Statements.
On May 31, 1995, the fund's net assets totaled $778.8 million. Fortress Utility
Fund, Inc. serves nearly 32,000 shareholders seeking high current income from a
portfolio of utility stocks, convertible securities and adjustable rate
preferreds.
Dividends paid per share to shareholders totaled $0.606 for the past 12-month
period. The fund's share net asset value rose from $12.30 on June 1, 1994 to
$12.69 on May 31, 1995. Total return for the past year based on net asset
value, plus dividends, amounted to 8.48%.*
The fund appeals to equity investors who wish to own a well-diversified
portfolio of utility companies. Currently, the fund has 31 high-quality, good
dividend-paying utility companies.* The fund's broad diversification also
includes convertible securities in industries not directly related to the
utility industry. The fund has 21.5% in convertible securities and 5.6% in
adjustable rate preferreds. The fund also has 8.4% of its assets in utilities
around the world offering greater growth potential than utility companies in
the U.S.
Investors who seek income and long-term growth consider this a wise investment.
I urge you to read this report. The key to enhancing your potential for
long-term investment success is to add to your account regularly. Reinvesting
your dividends increases the number of shares you own and expands your
potential for income returns.
We appreciate your continued confidence in Fortress Utility Fund, Inc. and
invite your comments and questions.
Sincerely yours,
[LOGO SIGNATURE]
Richard B. Fisher
President
July 14, 1995
* Performance quoted reflects past performance. Investment return and principal
value will fluctuate, so that the investor's shares, when redeemed, may be
worth more or less than their original cost. Total return (based on offering
price) was 6.41%.
Investment Review
Christopher H. Wiles
Vice President,
Federated Management
[PHOTO]
Q. What is the status of the utilities market?
A. Over the last 12 months, utilities have had a nice run due to the rally in
the bond market. As long-term interest rates fell from 7.87% to 6.62%, the S&P
Utility Index rose 15.06% and the Dow Jones Utility Index rose 18.58%.* While
there are still a lot of questions regarding the re-regulation of the electric
and telecommunications industry, interest rates remain the short-term driving
force.
Q. How did Fortress Utility Fund perform over the last 12 months?
A. Because of our defensive positions in non-utility securities, Fortress
Utility Fund, Inc. tends to lag the utility indices during short bursts of
outperformance. The last twelve months were no exception with the total return
of Fortress Utility Fund, Inc. up a respectable 8.48%, based on net asset
value. But over the last five years, Fortress Utility Fund, Inc. had a
cumulative total return of 68.59%, based on net asset value, versus a gain of
52.97% in the S&P Utility Index.**
Q. Will you review the fund's investment philosophy?
A. The fund is designed to give defensive equity investors exposure to the
utility market while limiting some of the downside risk inherent in interest
rate sensitive stocks. This risk reduction is accomplished through disciplined
portfolio construction that focuses on diversifying among electrics (38.4% of
net assets), natural gas (17.0% of net assets), telecommunications (19.3% of
net assets), and non-utilities (23.8% of net assets). International securities
also comprised 11.6% of overall net assets. This investment philosophy is
displayed in our current major holdings (see page 8 in this report).
* These indexes are unmanaged.
**Performance quoted reflects past performance. 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. Cumulative total return (based on
offering price) was 66.95%.
Q. Will you outline your future plans for the fund?
A. During the near future, we plan to increase our exposure to higher yielding
electric stocks slightly, maintaining our underweight in the Regional Bell
Operating Companies and taking some profits in our overweighted positions in
natural gas. The non-utility portion of the fund should remain near its 25%
weighting.
Q. What factors make the current environment favorable for utilities investors?
A. With the S&P 500 up 20.18%* in the last year and now into its 57th month of
the current bull market, the defensive characteristics of utilities are more
appealing than ever. On a relative yield basis, utilities are more attractive
now than they've appeared to be in years. We also believe that the threat of
competition in the electric utility industry is real but will evolve over the
next several decades, not quarters. With this in mind, we believe that
utilities currently offer defensive investors one of the best relative values
in years.
* This index is unmanaged.
Two Ways You May Seek to Invest for Success in
Fortress Utility Fund, Inc.
Initial Investment:
If you had made an initial investment of $9,000 in the Fortress Utility Fund,
Inc. on 1/30/87, reinvested your dividends and capital gains, and didn't redeem
any shares, your account would be worth $18,680 on 5/31/95. You would have
earned a 9.15%* average annual total return for the 8-year investment
lifespan-quite attractive for a utility stock fund, especially during a time
when the economic markets went through several cycles.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/95, average annual one-year, five-year, and since inception
(1/30/87) total returns were 9.84%, 10.41%, and 9.09%, respectively.
"Graphic representation A1 omitted. See Appendix."
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1% sales
load and the 1% contingent deferred sales charge.
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.
Fortress Utility Fund, Inc.
One Step at a Time:
$1,000 invested each year for 8 years (reinvesting all dividends and capital
gains) grew to $13,939.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Fortress Utility Fund, Inc.
on 1/30/87, reinvested your dividends and capital gains and didn't redeem any
shares, you would have invested only $9,000, but your account would have
reached a total value of $13,939* by 5/31/95. You would have earned an average
annual total return of 9.87%.
A practical investment plan helps you pursue long-term performance from utility
securities. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. This investment plan works for you even if you invest
only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
"Graphic representation A2 omitted. See Appendix."
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices. All
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Fortress Utility Fund, Inc.-Hypothetical Investor Profile:
Investing for Monthly Income
Ed and Jill Sanders are a fictional retired couple who invested in Fortress
Utility Fund, Inc. to provide them with monthly income. On January 30, 1987,
they invested $50,000-part of Ed's lump sum retirement in the fund. Since that
time, their investment of $50,000 has grown to a total value of $103,777 by May
31, 1995. This represents a 9.15% average annual total return.
This couple has paid a lifetime of utility bills. Now, through Fortress Utility
Fund, Inc., utilities are paying them!
"Graphic representation A3 omitted. See Appendix."
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder.
Past performance does not guarantee future results.
Fortress Utility Fund, Inc.-
Serving a Wide Range of Investors
Fortress Utility Fund, Inc. appeals to a broad range of investors seeking
current income.
The fund invests primarily in a diversified portfolio of quality equity
securities of utility companies. Fund shares are not guaranteed, and the value
of your investment may fluctuate. Mutual funds involve risk, including possible
loss of principal.
"Graphic representation A4 omitted. See Appendix."
Fortress Utility Fund, Inc.-
Portfolio Update
"Graphic representation A5 omitted. See Appendix."
Fortress Utility Fund, Inc.
Growth of $10,000 Invested in Fortress Utility Fund, Inc.
The graph below illustrates the hypothetical investment of $10,000 in the
Fortress Utility Fund, Inc. (the ``Fund'') from January 30, 1987 (start of
performance) to May 31, 1995 compared to the Standard and Poor's 500 Index (S&P
500)_ and the Standard and Poor's Utility Index (S&PU)+.
"Graphic representation A6 omitted. See Appendix."
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The fund's performance assumes the reinvestment of all
dividends and distributions. The S&P 500 and the S&PU have been adjusted to
reflect reinvestment of dividends on securities in the indices.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The S&P 500 and the S&PU are not adjusted to reflect sales loads, expenses,
or other fees that the SEC requires to be reflected in the fund's performance.
This indices are unmanaged.
Fortress Utility Fund, Inc.
Portfolio of Investments
- --------------------------------------------------------------------------------
May 31, 1995
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--70.3%
- -------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--33.2%
----------------------------------------------------------------------------------
480,000 Baltimore Gas & Electric Co. $ 12,480,000
----------------------------------------------------------------------------------
710,000 CMS Energy Corp. 17,128,750
----------------------------------------------------------------------------------
605,000 Cinergy Corp. 16,108,125
----------------------------------------------------------------------------------
598,000 DPL, Inc. 13,156,000
----------------------------------------------------------------------------------
690,000 DQE, Inc. 16,905,000
----------------------------------------------------------------------------------
282,000 Duke Power Co. 11,773,500
----------------------------------------------------------------------------------
380,000 FPL Group, Inc. 14,915,000
----------------------------------------------------------------------------------
300,000 Florida Progress Corp. 9,562,500
----------------------------------------------------------------------------------
505,000 General Public Utilities 15,150,000
----------------------------------------------------------------------------------
550,000 Illinova Corp. 13,612,500
----------------------------------------------------------------------------------
363,210 National Power Co. PLC, ADR 4,630,928
----------------------------------------------------------------------------------
454,000 NIPSCO Industries, Inc. 15,663,000
----------------------------------------------------------------------------------
715,000 Pacificorp 14,121,250
----------------------------------------------------------------------------------
583,000 Peco Energy Co. 16,396,875
----------------------------------------------------------------------------------
690,000 Pinnacle West Capital Corp. 15,870,000
----------------------------------------------------------------------------------
212,000 Public Service Enterprises Group, Inc. 6,307,000
----------------------------------------------------------------------------------
688,000 Southern Co. 15,222,000
----------------------------------------------------------------------------------
506,000 Utilicorp United, Inc. 14,421,000
----------------------------------------------------------------------------------
475,000 Western Resources, Inc. 14,962,500
---------------------------------------------------------------------------------- --------------
Total 258,385,928
---------------------------------------------------------------------------------- --------------
ENERGY MINERALS--1.4%
----------------------------------------------------------------------------------
150,000 Exxon Corp. 10,706,250
---------------------------------------------------------------------------------- --------------
FINANCE--4.1%
----------------------------------------------------------------------------------
235,000 CBL & Associates Properties, Inc. 4,553,125
----------------------------------------------------------------------------------
459,000 Meditrust, REIT 14,630,625
----------------------------------------------------------------------------------
369,000 Simon Property Group, Inc., REIT 9,178,875
----------------------------------------------------------------------------------
</TABLE>
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--CONTINUED
----------------------------------------------------------------------------------
266,000 South West Property Trust, Inc. $ 3,291,750
---------------------------------------------------------------------------------- --------------
Total 31,654,375
---------------------------------------------------------------------------------- --------------
NATURAL GAS--6.5%
----------------------------------------------------------------------------------
314,000 Consolidated Natural Gas Co. 12,520,750
----------------------------------------------------------------------------------
634,700 MCN Corp. 11,900,625
----------------------------------------------------------------------------------
735,000 Pacific Enterprises 18,558,750
----------------------------------------------------------------------------------
369,300 UGI Corp. 7,755,300
---------------------------------------------------------------------------------- --------------
Total 50,735,425
---------------------------------------------------------------------------------- --------------
OIL/GAS TRANSMISSION--8.9%
----------------------------------------------------------------------------------
410,000 Enron Corp. 14,965,000
----------------------------------------------------------------------------------
315,000 Enron Global Power & Pipelines, L.L.C. 7,796,250
----------------------------------------------------------------------------------
192,000 Panhandle Eastern Corp. 4,824,000
----------------------------------------------------------------------------------
687,000 Sonat, Inc. 22,585,125
----------------------------------------------------------------------------------
688,000 Westcoast Energy, Inc. 10,406,000
----------------------------------------------------------------------------------
274,000 Williams Companies, Inc. (The) 9,316,000
---------------------------------------------------------------------------------- --------------
Total 69,892,375
---------------------------------------------------------------------------------- --------------
PRODUCER MANUFACTURING--1.3%
----------------------------------------------------------------------------------
550,000 Hanson PLC, ADR 10,450,000
---------------------------------------------------------------------------------- --------------
TELECOMMUNICATIONS--14.9%
----------------------------------------------------------------------------------
367,000 AT&T Corp. 18,625,250
----------------------------------------------------------------------------------
189,000 Bell South Telecommunications, Inc. 11,599,875
----------------------------------------------------------------------------------
68,300 British Telecommunication PLC, ADR 4,311,437
----------------------------------------------------------------------------------
414,000 GTE Corp. 13,817,250
----------------------------------------------------------------------------------
279,700 Hong Kong Telecommunications Ltd., ADR 5,978,587
----------------------------------------------------------------------------------
400,000 Pacific Telesis Group 10,700,000
----------------------------------------------------------------------------------
365,000 SBC Communications, Inc. 16,425,000
----------------------------------------------------------------------------------
376,000 Southern New England Telecommunications 12,643,000
----------------------------------------------------------------------------------
206,000 Telefonica de Espana, ADR 8,240,000
----------------------------------------------------------------------------------
</TABLE>
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--CONTINUED
----------------------------------------------------------------------------------
329,000 U.S. West, Inc. $ 13,571,250
---------------------------------------------------------------------------------- --------------
Total 115,911,649
---------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $499,820,707) 547,736,002
---------------------------------------------------------------------------------- --------------
PREFERRED STOCKS--20.4%
- -------------------------------------------------------------------------------------------------
ADJUSTABLE RATE PREFERREDS--5.6%
----------------------------------------------------------------------------------
163,000 Enserch Corp., ARPS, Series E 14,873,750
----------------------------------------------------------------------------------
150,000 Niagara Mohawk Power Corp., ARPS, Series C 3,768,750
----------------------------------------------------------------------------------
58,625 Sunamerica, Inc., ARPS, Series C 5,891,812
----------------------------------------------------------------------------------
65,045 Texas Utilities Electric Co., ARPS, Series A 5,610,131
----------------------------------------------------------------------------------
75,000 Texas Utilities Electric Co., ARPS, Series B 6,909,375
----------------------------------------------------------------------------------
178,000 Toledo Edison Co., ARPS, Series B 3,693,500
----------------------------------------------------------------------------------
60,500 USX Corp., ARPS 3,002,313
---------------------------------------------------------------------------------- --------------
Total 43,749,631
---------------------------------------------------------------------------------- --------------
CONVERTIBLE PREFERREDS--14.8%
----------------------------------------------------------------------------------
109,000 Allstate Corp., Conv. Pfd., $2.30 4,237,375
----------------------------------------------------------------------------------
265,000 (a)Cointel, Telefonica de Argentina SA, PRIDES, $5.04 14,641,250
----------------------------------------------------------------------------------
88,820 (a)Freeport McMoRan, Inc., Conv. Pfd., $4.38 4,496,513
----------------------------------------------------------------------------------
578,000 James River Corp. of Virginia, DECS, Series P., $1.55 13,944,250
----------------------------------------------------------------------------------
300,000 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 4,612,500
----------------------------------------------------------------------------------
142,000 (a)Occidental Petroleum Corp., Conv. Pfd., $3.88 8,023,000
----------------------------------------------------------------------------------
2,485,000 RJR Nabisco Holdings Corp., Conv., Pfd., Series C. $.60 15,220,625
----------------------------------------------------------------------------------
245,000 Reynolds Metals Co., PRIDES, $3.30 11,453,750
----------------------------------------------------------------------------------
304,000 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 13,528,000
----------------------------------------------------------------------------------
1,409,000 (a)Westinghouse Electric Corp., PEPS, Series C, $1.30 20,958,875
----------------------------------------------------------------------------------
74,000 Williams Companies, Inc. (The), Conv. Pfd., $3.50 4,440,000
---------------------------------------------------------------------------------- --------------
Total 115,556,138
---------------------------------------------------------------------------------- --------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $155,449,124) 159,305,769
---------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
CONVERTIBLE CORPORATE BONDS--6.6%
- -------------------------------------------------------------------------------------------------
CONSUMER SERVICES--1.1%
----------------------------------------------------------------------------------
$ 17,265,000 Rogers Communications, Inc., Conv. Deb., 2.00%, 11/26/2005 $ 8,848,313
---------------------------------------------------------------------------------- --------------
ENERGY MINERALS--1.4%
----------------------------------------------------------------------------------
8,700,000 Pennzoil Co., Conv. Deb., 6.50% 1/15/2003 10,517,430
---------------------------------------------------------------------------------- --------------
FINANCE--0.9%
----------------------------------------------------------------------------------
6,470,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125 %, 12/15/2024 6,597,200
---------------------------------------------------------------------------------- --------------
HEALTH TECHNOLOGY--1.8%
----------------------------------------------------------------------------------
37,250,000 Roche Holdings, Inc., Conv. LYON, 7.00% accrual, 4/20/2010 14,248,125
---------------------------------------------------------------------------------- --------------
NON-U.S. UTILITIES--1.4%
----------------------------------------------------------------------------------
12,000,000 (a)Telekom Malaysia Berhad, Conv. Bond, 4.00%, 10/3/2004 11,220,000
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BOND (IDENTIFIED COST $51,355,647) 51,431,068
---------------------------------------------------------------------------------- --------------
(B)REPURCHASE AGREEMENT--2.3%
- -------------------------------------------------------------------------------------------------
17,960,000 J.P. Morgan & Co., Inc., 6.17%, dated 5/31/1995, due 6/1/1995
at amortized cost 17,960,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $724,585,478) (C) $ 776,432,839
---------------------------------------------------------------------------------- --------------
</TABLE>
(a) Restricted Securities-Investment in securities not registered under the
Securities Act of 1933. At the end of the period, these securities amounted
to 7.6% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations, based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through a joint account with other
Federated funds.
(c) The cost for federal tax purposes amounts to $725,780,619. The net
unrealized appreciation of investments on a federal tax cost basis amounts
to $50,652,220, which is comprised of $63,958,024 appreciation and
$13,305,804 depreciation at May 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($778,819,840) at May 31, 1995.
The following abbreviations are used throughout this portfolio:
ADR--American Depositary Receipt
ARPS--Adjustable Rate Preferred Stock
DECS--Dividend Enhanced Convertible Stock
LYON--Liquid Yield Option Note
PEPS--Participating Equity Preferred Stock
PRIDES--Preferred Redeemable Increased
Dividend Equity Securities
REIT--Real Estate Investment Trust
(See Notes which are an integral part of the Financial Statements.)
Fortress Utility Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
May 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $724,585,478,
and tax cost $725,780,619) $ 776,432,839
- -------------------------------------------------------------------------------------------------
Cash 30,873
- -------------------------------------------------------------------------------------------------
Income receivable 3,966,105
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 5,723,514
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 941,860
- ------------------------------------------------------------------------------------------------- --------------
Total assets 787,095,191
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for investments purchased $ 4,448,250
- -----------------------------------------------------------------------------------
Payable for shares redeemed 2,163,403
- -----------------------------------------------------------------------------------
Income distribution payable 1,338,674
- -----------------------------------------------------------------------------------
Accrued expenses 325,024
- ----------------------------------------------------------------------------------- ------------
Total liabilities 8,275,351
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 61,388,625 shares outstanding $ 778,819,840
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 740,892,364
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 51,847,361
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (28,780,577)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 14,860,692
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 778,819,840
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($778,819,840 / 61,388,625 shares outstanding) $12.69
- ------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/99.00 of $12.69)* $12.82
- ------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds Per Share (99.00/100 of $12.69)* $12.56
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
* See 'What Shares Cost' in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Year ended May 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest $ 3,304,919
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign tax withheld $333,101) 43,071,568
- --------------------------------------------------------------------------------------------------- ------------
Total income 46,376,487
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee $ 6,080,157
- -------------------------------------------------------------------------------------
Administrative personnel and services fee 613,690
- -------------------------------------------------------------------------------------
Custodian fees 111,799
- -------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 1,096,288
- -------------------------------------------------------------------------------------
Directors'/Trustees' fees 20,717
- -------------------------------------------------------------------------------------
Auditing fees 17,500
- -------------------------------------------------------------------------------------
Legal fees 13,936
- -------------------------------------------------------------------------------------
Portfolio accounting fees 116,856
- -------------------------------------------------------------------------------------
Shareholder services fee 1,734,398
- -------------------------------------------------------------------------------------
Share registration costs 54,351
- -------------------------------------------------------------------------------------
Printing and postage 96,376
- -------------------------------------------------------------------------------------
Insurance premiums 17,200
- -------------------------------------------------------------------------------------
Taxes 186,500
- -------------------------------------------------------------------------------------
Miscellaneous 14,393
- ------------------------------------------------------------------------------------- ------------
Total expenses 10,174,161
- -------------------------------------------------------------------------------------
Deduct--waiver of investment advisory fee 928,126
- ------------------------------------------------------------------------------------- ------------
Net expenses 9,246,035
- --------------------------------------------------------------------------------------------------- ------------
Net investment income 37,130,452
- --------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (and foreign currency transactions) (22,913,166)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (and foreign currency
transactions) 47,783,353
- --------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments (and foreign currency transactions) 24,870,187
- --------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 62,000,639
- --------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 37,130,452 $ 45,613,473
- -------------------------------------------------------------------------------
Net realized gain/(loss) on investments and foreign currency
transactions ($13,799,534 net loss and $362,425 net gain
respectively, as computed for federal income tax purposes) (22,913,166) (2,146,782)
- -------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) and foreign currency
transactions 47,783,353 (52,699,309)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in assets resulting from operations 62,000,639 (9,232,618)
- ------------------------------------------------------------------------------- --------------- ---------------
NET EQUALIZATION CREDITS/(DEBITS) (3,344,167) 3,241,019
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Distributions from net investment income (40,393,334) (43,554,138)
- -------------------------------------------------------------------------------
Distributions from net realized gains 0 (790,659)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (40,393,334) (44,344,797)
- ------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS
- -------------------------------------------------------------------------------
Proceeds from sale of Shares 111,749,191 481,074,828
- -------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of distributions
declared 19,819,937 20,339,263
- -------------------------------------------------------------------------------
Cost of Shares redeemed (263,502,665) (300,654,866)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from Share transactions (131,933,537) 200,759,225
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (113,670,399) 150,422,829
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 892,490,239 742,067,410
- ------------------------------------------------------------------------------- --------------- ---------------
End of period (including undistributed net investment income of $14,860,692 and
$24,046,071, respectively) $ 778,819,840 $ 892,490,239
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
NET ASSET VALUE, BEGINNING OF
PERIOD $ 12.30 $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18 $ 10.00
- ------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------------
Net investment income 0.56 0.63 0.68 0.69 0.77 0.67 0.63 0.63 0.24
- ------------------------------
Net realized and unrealized
gain (loss) on investments 0.44 (0.61) 1.25 1.07 0.51 0.48 0.77 (0.34) (0.98)
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from investment
operations 1.00 0.02 1.93 1.76 1.28 1.15 1.40 0.29 (0.74)
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Distributions from net
investment income (0.61) (0.61) (0.67) (0.66) (0.75) (0.71) (0.60) (0.57) (0.08)
- ------------------------------
Distributions from net
realized gain on investment
transactions 0.00 (0.01) (0.05) 0.00 (0.08) 0.00 0.00 0.00 0.00
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total distributions (0.61) (0.62) (0.72) (0.66) (0.83) (0.71) (0.60) (0.57) (0.08)
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.69 $ 12.30 $ 12.90 $ 11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN (B) 8.48% 0.01% 17.02% 17.07% 13.44% 12.13% 16.47% 3.21% (7.74%)
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.14% 1.11% 1.07% 1.10% 1.03% 1.05% 1.08% 1.04% 0.53%(c)
- ------------------------------
Net investment income 4.58% 4.92% 5.45% 6.01% 7.12% 6.77% 6.92% 7.18% 7.95%(c)
- ------------------------------
Expense waiver/
reimbursement (d) 0.11% 0.12% 0.05% 0.11% 0.61% 1.39% 0.86% 1.00% 0.97%(c)
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $778,820 $892,490 $742,067 $247,482 $66,578 $29,844 $13,476 $9,256 $6,305
- ------------------------------
Portfolio Turnover 56% 28% 27% 26% 53% 49% 17% 23% 12 %
- ------------------------------
</TABLE>
(a) Reflects operations for the period from January 30, 1987 to May 31, 1987.
For the period from the start of business January 14, 1987 to January 29,
1987, the net investment income was distributed to the Fund's investment
adviser. Such distribution represented net income of the Fund prior to the
initial public offering of the Fund shares which commenced on January 30,
1987
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
May 31, 1995
(1) ORGANIZATION
The Fund is registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end, load, management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities, corporate bonds, and other
fixed income securities are valued at the last sale price reported on
national securities exchanges. Unlisted securities and bonds are generally
valued at the price provided by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less may be stated at
amortized cost, which approximates value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank or brokers 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
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 guidelines established
by the Board of Directors/Trustees (the "Directors"/"Trustees"). 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--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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").
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 taxable income.
Accordingly, no provisions for federal tax are necessary. At May 31, 1995,
the Fund, for federal tax purposes, had a capital loss carryforward of
$15,909,474 which will reduce the Fund's taxable income arising from future
net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will
expire in 1998 ($2,109,940), and 2003 ($13,799,534). However, federal taxes
may be imposed on the Fund upon the disposition of certain investments in
Passive Foreign investment Companies. Withholding taxes on foreign
dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates.
Additionally, net capital losses of $11,675,961 attributable to security
transactions incurred after October 31, 1994 are treated as arising on June
1, 1995, the first day of the Fund's next taxable year.
During the year ended May 31, 1991, Federated Corporate Cash Trust was
merged into the Fund. As part of this transaction for federal tax purposes,
Federated Corporate Cash Trust succeeded to the Fund capital loss
carryforwards of $15,211,243 expiring in various years through 1998. The
Fund's ability to use these losses will be limited through the application
of the Code's change of ownership rules. The maximum amount of
carryforwards available to the Fund at May 31, 1995, is $2,109,940 which
will expire in 1998.
EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of capital stock equivalent, on a per share basis, to the
amount of undistributed net investment income on the date of the
transaction is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of capital stock.
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.
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/Trustees. 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 determined by the Fund's
pricing committee. Additional information on each restricted security held
at May 31, 1995, is as follows:
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
- ---------------------------------------------------------------------------- ------------------- --------------
Cointel, Telefonica de Argentina SA 2/24/94-11/7/94 $ 17,494,255
- ----------------------------------------------------------------------------
Freeport McMoran, Inc. 6/22/93-11/15/94 10,594,025
- ----------------------------------------------------------------------------
Occidental Petroleum Corp. 2/10/93-9/2/94 20,687,500
- ----------------------------------------------------------------------------
Westinghouse Electric Corp. 3/22/94 22,771,880
- ----------------------------------------------------------------------------
Telekom Malaysia Berhad 10/3/94 11,000,000
- ----------------------------------------------------------------------------
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchase and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates of investments from
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in exchange rate.
RECLASSIFICATIONS--Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for foreign currency transactions. Amounts as
of May 31, 1995, have been reclassified to reflect an increase in paid in
capital of $3,828,399 and a decrease in accumulated net realized loss on
investments of $1,250,069, and a decrease in undistributed net investment
income of $2,578,330. Net investment income, net realized gains, and net
assets were not affected by this change.
OTHER--Investment transactions are accounted for on the trade date.
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At May 31, 1995, there were 2,000,000,000 shares of $.001 per share par value
capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1995 1994
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Shares sold 9,455,561 37,006,327
- ------------------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,681,625 1,579,370
- ------------------------------------------------------------------------------------
Shares redeemed (22,318,428) (23,548,310)
- ------------------------------------------------------------------------------------ ------------- -------------
Net change resulting from capital stock transactions (11,181,242) 15,037,387
- ------------------------------------------------------------------------------------ ------------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment Adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .75 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Fund. The FServ fee is based on the size, type and number of accounts and
transactions by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the size, type, and number of
accounts and transactions made by shareholders.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
Fortress Utility Fund, Inc.
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended May 31, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 434,982,017
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 578,216,146
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
FORTRESS UTILITY FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Fortress
Utility Fund, Inc., including the portfolio of investments, as of May 31, 1995,
and the related statement of operations for the year then ended and the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the nine years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of May 31, 1995 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Fortress Utility Fund, Inc., at May 31, 1995, the results of its operations for
the year then ended, and the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the nine years
in the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 14, 1995
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Edward L. Flaherty, Jr. Vice President
Glen R. Johnson Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency.
Investment in mutual funds involves investment risk, including possible loss of
principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO]
FEDERATED SECURITIES CORP.
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
[RECYCLE LOGO]
349561100
G01231-01 (7/95)
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from
1/30/87 to 5/31/95. The "y" axis is measured in increments of $5,000 ranging
from $0 to $20,000 and indicates that the ending value of hypothetical initial
investment of $9,000 in the fund, assuming the reinvestment of capital gains
and dividends,would have grown to $18,680 on 5/31/95.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from
1/30/87 to 5/31/95. The "y" axis is measured in increments of $5,000 ranging
from $0 to $15,000 and indicates that the ending value of hypothetical yearly
investments of $1,000 in the fund', assuming the reinvestment of capital gains
and dividends,would have grown to $13,939 on 5/31/95.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text beneath it. The "x" axis reflects computation periods from
1/30/87 to 5/31/95. The "y" axis is measured in increments of $20,000 ranging
from $0 to $120,000 and indicates that the ending value of a hypothetical
initial investment of $50,000 in the fund would have grown to $103,777 on
5/31/95.
A4. The graphic presentation here displayed consists of a two-column chart
outlining "Some of the Fund's Major Shareholder Groups." The information is as
follows: Individuals and Joint Tenants, $146,445,725; IRA's, $113,976,329;
Trusts, $28,774,004; Corporations, 9,671,027; Custodians (under Uniform Gift
to Minors Act), $7,253,033; Clubs/Fraternal Organizations, 6,922,746; and
Pensions, 1,084,753.
A5. The graphic presentation here displayed consists of a two-column chart
outlining the Fund's "Top Ten Holdings" as of 5/31/95." The information is as
follows: SONAT, 2.90%; Westinghouse Electric Corp. PEPS, 2.70%; AT&T Corp.,
2.40%; Pacific Enterprises, 2.39%; CMS Energy Corp., 2.21%; DQE, Inc., 2.18%;
SBC Communications, Inc., 2.12%; Peco Energy Co., 2.11%; Cinergy Corp., 2.07%;
and Pinnacle West Capital Corp., 2.04%.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Fortress
Utility Fund, Inc. is represented by a solid line. The Standard & Poor's 500
Index (the "S&P 500") is represented by a double broken dotted line and the
Standard & Poor's Utility Index (S&PU) is represented by a represented by a
broken solid line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the the fund and
the S&P 500 and the S&PU. The "x" axis reflects computation periods from
1/30/87 to 5/31/95. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
fund as compared to the S&P 500 and the S&PU; the ending values were $20,755,
$25,232, and $22,229, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Average Annual Total Return for the
one-year, five-year, and start of performance (1/30/87) periods ended 5/31/95,
which were 6.41%, 10.79%, and 9.15%, respectively.
