[LOGO] Federated
Fortress
Utility
Fund, Inc.
8th Semi-Annual Report
November 30, 1994
Established 1987
President's Message
- ------------------------------------------------------------------------
- -------
Dear Fellow Shareholder:
I am pleased to present the Semi-Annual Report for Fortress Utility
Fund, Inc.
(the ``Fund'') for the six-month period ended November 30, 1994.
The report contains an interview with the Fund's portfolio manager,
Christopher
Wiles, Vice President of Federated Advisers. Following the interview are
a
complete listing of the Fund's Portfolio of Investments and Financial
Statements.
During the six-month reporting period, the Fund paid more than $22
million in
dividends to shareholders. However, due to the increase in interest
rates that
affected all financial markets, the net asset value per share for the
Fund
declined from $12.30 to $11.83, a decline of 3.8%.* On the last day of
the
six-month reporting period, the Fund's net assets stood at $780 million.
The Fund's portfolio remained well-diversified: 63.2% of the Fund's
assets were
invested in utility and other common stocks; 30.3% in convertible and
adjustable rate preferred stocks; 3.6% in convertible corporate bonds;
and 2.7%
in a repurchase agreement. This diversification helped the Fund
outperform the
overall utility market which declined during the reporting period.
Fortress Utility Fund, Inc. offers a sensible way to invest for income
and
growth over the long term. Utilities provide a vital service; no matter
what
state the economy is in, people need utilities.
Thank you for choosing Fortress Utility Fund, Inc. as a convenient way
to own
strong utility companies in the U.S. Your questions and comments are
always
welcome.
Very sincerely yours,
Richard B. Fisher
President
January 15, 1995
*Performance quoted represents 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.
Investment Review
- ------------------------------------------------------------------------
- -------
Christopher H. Wiles, CFA
Vice President,
Federated Advisers
Investors have just experienced the worst period in almost two decades
for
domestic utility stocks. Chris, can you briefly describe the status of
the U.S.
utility industry and the factors driving its evolution?
Electric utility stocks are down approximately 30% from their highs, and
the
news surrounding them continues to be relatively negative. The reasons
for this
decline are twofold. First, rising interest rates negatively impact
utilities,
and second, the industry is undergoing a change in regulation that will
foster
more competition. Transitional changes of this magnitude are never
painless,
but what should evolve is a more efficient industry with clear winners
and
losers.
How was the Fund's performance affected?
Obviously, when an industry undergoes such a large decline, it's nearly
impossible for an investor in that industry to escape unscathed.
However, the
total return of Fortress Utility Fund, Inc. was down only 5.35%* from
12/1/93
to 11/30/94 while the total return of Dow Jones Utility Index** was down
15.01%
over the same period.
How did the Fund manage to outperform the index?
The reason for our significant outperformance is our continued focus on
diversification. As of December 31, 1994, we have only 32% of our assets
in
electric utility common stocks (the worst performing utilities), 24% in
telecommunications, 16% in natural gas, 24% in convertibles and non-
utility
holdings, and 4% are invested in cash. Please take time to review the
Fund's
holdings in 43 utility companies and 20 other income producing issues.
*Performance quoted represents 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. Fund total return
is based
on net asset value, which does not reflect a sales load or contingent
deferred
sales charge, if applicable.
**This index is unmanaged.
- ------------------------------------------------------------------------
- -------
In preparation for ongoing changes in the market, have you revised your
strategy during the reporting period?
Over the last year, we have lowered our overall electric exposure to
32%, while
increasing telecommunications to 24%, natural gas to 16%, and non-
utilities and
convertibles to 24%. Our security selection process is focusing on
companies
with both financial and management flexibility.
Given the current status of the market, why should people still invest
in
utilities?
The number one reason is the vital nature of utilities. This industry is
not
disappearing. In order for us to have dependable service, utility
companies
must be allowed to earn enough in profits to attract investment capital.
Some
other reasons include:
. Historically consistent current income and value;
. A tradition of increased efficiency and healthier earnings;
. Sales growth through international investment; and
. Regulations that allow more mergers.
Out of more than 100 utilities, we will work to identify those companies
that
will carry us into the new era. We are confident in our selections of
individual companies and pleased with our broad diversification.
Two Ways You May Seek to Invest for Success in
Fortress Utility Fund, Inc.
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- -------
If you had made an initial investment of $8,000 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 $15,123 on 11/30/94. You would
have
earned a 8.47%* average annual total return for the 7-year investment
lifespan quite attractive for a utility 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
gaining the benefit of compounding at the same time.
As of 12/31/94, average annual one-year, five-year, and since inception
(1/30/87) total returns were -9.83%*, 7.75%*, and 8.30%*, respectively.
"Graphic representation 'A' omitted. See Appendix."
*Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and taking into account the
1% sales
load and the 1% contingent deferred sales charge on shares redeemed
prior to 48
months on the initial investment.
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.
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- -------
One Step at a Time
$1,000 invested each year for 7 years (rein- vesting all dividends and
capital
gains) grew to $11,725.
With this approach, the key is consistency.
If you had started investing $1,000 annually in 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 $8,000, but your account would have
reached a total value of $11,725 by 11/30/94. You would have earned an
average
annual total return of 8.75%.*
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 'B' 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
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- -------
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. Since that time,
their
investment has generated monthly income averaging $269. This represents
a 8.24%
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 'C' 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. Total return does not
include
the reinvestment of dividends or capital gains.
Fortress Utility Fund, Inc.
Portfolio of Investments
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- --------
November 30, 1994
(unaudited)
<TABLE>
<CAPTION>
SHARES
VALUE
- ------------- ---------------------------------------------------------
- ------------------------- --------------
<C> <S>
<C>
COMMON STOCKS--63.2%
- ------------------------------------------------------------------------
- -------------------------
ELECTRIC UTILITIES--28.3%
---------------------------------------------------------
- -------------------------
445,000 Baltimore Gas & Electric Co.
$ 10,068,125
---------------------------------------------------------
- -------------------------
800,000 Cinergy Corp.
17,800,000
---------------------------------------------------------
- -------------------------
525,000 CMS Energy Corp.
11,681,250
---------------------------------------------------------
- -------------------------
657,000 DPL, Inc.
13,386,375
---------------------------------------------------------
- -------------------------
500,000 DQE, Inc.
15,125,000
---------------------------------------------------------
- -------------------------
300,000 Duke Power Co.
12,225,000
---------------------------------------------------------
- -------------------------
400,000 Florida Progress Corp.
12,150,000
---------------------------------------------------------
- -------------------------
300,000 FPL Group, Inc.
10,612,500
---------------------------------------------------------
- -------------------------
500,000 General Public Utilities
12,875,000
---------------------------------------------------------
- -------------------------
335,500 Illinova Corp.
6,710,000
---------------------------------------------------------
- -------------------------
448,300 NIPSCO Industries, Inc.
13,112,775
---------------------------------------------------------
- -------------------------
1,000,000 Pacificorp
18,500,000
---------------------------------------------------------
- -------------------------
500,000 Peco Energy Co.
12,062,500
---------------------------------------------------------
- -------------------------
700,000 Pinnacle West Capital Corp.
13,562,500
---------------------------------------------------------
- -------------------------
710,000 Southern Co.
14,732,500
---------------------------------------------------------
- -------------------------
550,000 Utilicorp United, Inc.
14,162,500
---------------------------------------------------------
- -------------------------
425,000 Western Resources, Inc.
11,953,125
---------------------------------------------------------
- ------------------------- --------------
Total
220,719,150
---------------------------------------------------------
- ------------------------- --------------
NATURAL GAS--12.3%
---------------------------------------------------------
- -------------------------
350,000 Consolidated Natural Gas Co.
12,250,000
---------------------------------------------------------
- -------------------------
450,000 Enron Corp.
12,150,000
---------------------------------------------------------
- -------------------------
344,400 Enron Global Power & Pipelines L.L.C.
7,964,250
---------------------------------------------------------
- -------------------------
538,000 MCN Corp.
9,751,250
---------------------------------------------------------
- -------------------------
800,000 Pacific Enterprises
17,100,000
---------------------------------------------------------
- -------------------------
750,000 Sonat, Inc.
21,093,750
---------------------------------------------------------
- -------------------------
482,300 UGI Corp.
9,103,412
---------------------------------------------------------
- -------------------------
377,100 Westcoast Energy, Inc.
$ 6,410,700
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
Fortress Utility Fund, Inc.
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
SHARES
VALUE
- ------------- ---------------------------------------------------------
- ------------------------- --------------
<C> <S>
<C>
COMMON STOCKS--CONTINUED
- ------------------------------------------------------------------------
- -------------------------
NATURAL GAS--CONTINUED
---------------------------------------------------------
- -------------------------
Total
95,823,362
---------------------------------------------------------
- ------------------------- --------------
TELECOMMUNICATIONS--16.5%
---------------------------------------------------------
- -------------------------
400,000 AT & T Corp.
19,650,000
---------------------------------------------------------
- -------------------------
500,000 BCE, Inc.
16,687,500
---------------------------------------------------------
- -------------------------
300,000 British Telecommunication PLC, ADR
17,812,500
---------------------------------------------------------
- -------------------------
500,000 GTE Corp.
15,312,500
---------------------------------------------------------
- -------------------------
600,000 Hong Kong Telecommunications, ADR
11,625,000
---------------------------------------------------------
- -------------------------
400,000 NYNEX Corp.
15,050,000
---------------------------------------------------------
- -------------------------
500,000 Southern New England Telecommunications
16,500,000
---------------------------------------------------------
- -------------------------
396,500 Southwestern Bell Corp.
16,405,188
---------------------------------------------------------
- ------------------------- --------------
Total
129,042,688
---------------------------------------------------------
- ------------------------- --------------
NON-UTILITY--6.1%
---------------------------------------------------------
- -------------------------
275,000 CBL & Associates Properties, Inc., REIT
4,846,875
---------------------------------------------------------
- -------------------------
600,000 Hanson, PLC, ADR
10,950,000
---------------------------------------------------------
- -------------------------
485,600 Meditrust, REIT
14,446,600
---------------------------------------------------------
- -------------------------
48,300 Mobil Corp.
4,117,575
---------------------------------------------------------
- -------------------------
400,000 Simon Property Group, Inc., REIT
9,450,000
---------------------------------------------------------
- -------------------------
335,000 South West Property Trust, Inc.
3,768,750
---------------------------------------------------------
- ------------------------- --------------
Total
47,579,800
---------------------------------------------------------
- ------------------------- --------------
TOTAL COMMON STOCK (IDENTIFIED COST $502,215,233)
493,165,000
---------------------------------------------------------
- ------------------------- --------------
PREFERRED STOCKS--30.3%
- ------------------------------------------------------------------------
- -------------------------
ADJUSTABLE RATE PREFERREDS--5.8%
---------------------------------------------------------
- -------------------------
170,000 Enserch Corp., ARPS, Series E
15,300,000
---------------------------------------------------------
- -------------------------
125,000 Illinois Power Co., ARPS, Series E
5,843,750
---------------------------------------------------------
- -------------------------
150,000 Niagara Mohawk Power Corp., ARPS, Series C
3,637,500
---------------------------------------------------------
- -------------------------
65,045 Texas Utilities Electric Co., ARPS, Series A
5,626,393
---------------------------------------------------------
- -------------------------
90,000 Texas Utilities Electric Co., ARPS, Series B
$ 8,100,000
---------------------------------------------------------
- -------------------------
178,000 Toledo Edison Co., ARPS, Series B
3,938,250
---------------------------------------------------------
- -------------------------
</TABLE>
Fortress Utility Fund, Inc.
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES
VALUE
- ------------- ---------------------------------------------------------
- ------------------------- --------------
<C> <S>
<C>
PREFERRED STOCKS--CONTINUED
- ------------------------------------------------------------------------
- -------------------------
ADJUSTABLE RATE PREFERREDS--CONTINUED
---------------------------------------------------------
- -------------------------
60,500 USX Corp., ARPS
2,979,625
---------------------------------------------------------
- ------------------------- --------------
Total
45,425,518
---------------------------------------------------------
- ------------------------- --------------
CONVERTIBLE PREFERREDS--24.5%
---------------------------------------------------------
- -------------------------
697,500 Citicorp, PERCS, Series 15, $1.22
13,426,875
---------------------------------------------------------
- -------------------------
250,000 (a)Cointel, Telefonica de Argentina SA, PRIDES, $5.04
13,437,500
---------------------------------------------------------
- -------------------------
225,000 (a)Freeport McMoran, Inc., Conv. Pfd., $4.38
10,659,375
---------------------------------------------------------
- -------------------------
530,000 James River Corp. of Virginia, DECS, Series P, $1.55
10,865,000
---------------------------------------------------------
- -------------------------
268,700 Kaufman and Broad Homes, Inc., Conv. Pfd., Series B,
$8.74 3,929,738
---------------------------------------------------------
- -------------------------
450,000 (a)Nacional Financiera, SNC, PRIDES, $6.79
25,762,500
---------------------------------------------------------
- -------------------------
400,000 (a)Occidental Petroleum Corp., Conv. Pfd., $3.88
19,700,000
---------------------------------------------------------
- -------------------------
183,700 (a)Philippine Long Distance, Conv. Pfd., Series II, $1.44
5,596,053
---------------------------------------------------------
- -------------------------
260,000 Reynolds Metals Co., PRIDES, $3.31
12,155,000
---------------------------------------------------------
- -------------------------
2,369,600 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60
15,994,800
---------------------------------------------------------
- -------------------------
210,000 Sears, Roebuck & Co., Conv. Pfd., Series A, $3.75
11,655,000
---------------------------------------------------------
- -------------------------
309,800 Sunamerica, Inc., Conv. Pfd., Series D, $2.78
11,075,350
---------------------------------------------------------
- -------------------------
300,000 Tenneco, Inc., Conv. Pfd., Series A, $2.80
11,287,500
---------------------------------------------------------
- -------------------------
112,600 Unisys Corp., Conv. Pfd., Series A, $3.75
3,715,800
---------------------------------------------------------
- -------------------------
1,577,000 (a)Westinghouse Electric Corp., PEPS, Series C, $1.30
21,683,750
---------------------------------------------------------
- ------------------------- --------------
Total
190,944,241
---------------------------------------------------------
- ------------------------- --------------
TOTAL PREFERRED STOCK (IDENTIFIED COST $238,941,849)
236,369,759
---------------------------------------------------------
- ------------------------- --------------
CONVERTIBLE BONDS--3.6%
- ------------------------------------------------------------------------
- -------------------------
$ 10,000,000 National Power Co., PLC, Conv. Sub., 6.25%, 9/23/2008
18,468,133
---------------------------------------------------------
- -------------------------
11,000,000 (a)Telekom Malaysia Berhad, Conv. Bond, 4.00%, 10/3/2004
10,140,680
---------------------------------------------------------
- ------------------------- --------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $27,546,650)
28,608,813
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
Fortress Utility Fund, Inc.
- ------------------------------------------------------------------------
- --------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C> <S>
<C>
- ------------- ---------------------------------------------------------
- ------------------------- --------------
REPURCHASE AGREEMENT--2.7%
- ------------------------------------------------------------------------
- -------------------------
$ 20,810,000 J.P. Morgan and Co., Inc., 5.77%, dated 11/30/94, due
12/5/94,
at amortized cost
$ 20,810,000
---------------------------------------------------------
- ------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $789,513,732)
$ 778,953,572+
---------------------------------------------------------
- ------------------------- --------------
</TABLE>
(a) Denotes restricted securities which are subject to resale under
Federal
Securities laws. These securities have been determined to be liquid
under
criteria established by the Board of Directors.
*The repurchase agreement is fully collateralized by U.S. government
and/or
agency obligations, based on market prices at the date of the
portfolio. The
investment in the repurchase agreement is through participation in a
joint
account with other Federated funds.
+The cost for federal tax purposes amounts to $789,513,732. The net
unrealized depreciation of investments on a federal tax cost basis
amounts
to $10,560,160, which is comprised of $31,766,796 appreciation and
$42,326,956 depreciation at November 30, 1994.
Note: The categories of investments are shown as a percentage of net
assets
($780,322,853) at November 30, 1994.
The following abbreviations are used in this portfolio:
ADR--American Depository Receipts
ARPS--Adjustable Rate Preferred Stock
DECS--Dividend Enhanced Convertible Stock
PEPS--Participating Equity Preferred Stock
PERCS--Preferred Equity Redeemable 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
- ------------------------------------------------------------------------
- --------
November 30, 1994
(unaudited)
<TABLE>
<S>
<C> <C>
ASSETS:
- ------------------------------------------------------------------------
- -------------------------
Investments, at value (identified and tax cost; $789,513,732)
$ 778,953,572
- ------------------------------------------------------------------------
- -------------------------
Cash
42,673
- ------------------------------------------------------------------------
- -------------------------
Receivable for investments sold
16,560,346
- ------------------------------------------------------------------------
- -------------------------
Dividends and interest receivable
4,538,445
- ------------------------------------------------------------------------
- -------------------------
Receivable for capital stock sold
1,215,058
- ------------------------------------------------------------------------
- ------------------------- --------------
Total assets
801,310,094
- ------------------------------------------------------------------------
- -------------------------
LIABILITIES:
- ------------------------------------------------------------------------
- -------------------------
Payable for investments purchased
$ 16,803,066
- ------------------------------------------------------------------------
- ----------
Payable for capital stock redeemed
2,409,659
- ------------------------------------------------------------------------
- ----------
Dividends payable
1,770,884
- ------------------------------------------------------------------------
- ----------
Accrued expenses and other liabilities
3,632
- ------------------------------------------------------------------------
- ---------- -------------
Total liabilities
20,987,241
- ------------------------------------------------------------------------
- ------------------------- --------------
NET ASSETS for 65,947,045 shares of capital stock outstanding
$ 780,322,853
- ------------------------------------------------------------------------
- ------------------------- --------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------
- -------------------------
Paid-in capital
$ 790,584,403
- ------------------------------------------------------------------------
- -------------------------
Net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(10,563,040)
- ------------------------------------------------------------------------
- -------------------------
Accumulated net realized gain (loss) on investments and foreign
currency transactions
(19,750,545)
- ------------------------------------------------------------------------
- -------------------------
Undistributed net investment income
20,052,035
- ------------------------------------------------------------------------
- ------------------------- --------------
Total Net Assets
$ 780,322,853
- ------------------------------------------------------------------------
- ------------------------- --------------
NET ASSET VALUE PER SHARE:
- ------------------------------------------------------------------------
- -------------------------
($780,322,853 / 65,947,045 shares of capital stock outstanding)
$11.83
- ------------------------------------------------------------------------
- ------------------------- --------------
COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/99 of
11.83)* $11.95
- ------------------------------------------------------------------------
- ------------------------- --------------
COMPUTATION OF PROCEEDS ON REDEMPTION:
- ------------------------------------------------------------------------
- -------------------------
Redemption Proceeds Per Share (99/100 of 11.83)**
$11.71
- ------------------------------------------------------------------------
- ------------------------- --------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**Under certain conditions, the contingent deferred sales charge of
1.00% is not
imposed, as stated under "Redeeming Shares" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Statement of Operations
- ------------------------------------------------------------------------
- --------
Six Months Ended November 30, 1994
(unaudited)
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------
- --------------------------
Dividend income (net of foreign taxes withheld of $286,781)
$ 23,652,882
- ------------------------------------------------------------------------
- --------------------------
Interest income
1,474,202
- ------------------------------------------------------------------------
- -------------------------- --------------
Total investment income
25,127,084
- ------------------------------------------------------------------------
- --------------------------
EXPENSES:
- ------------------------------------------------------------------------
- --------------------------
Investment advisory fee
$ 3,192,329
- ------------------------------------------------------------------------
- ------------
Directors' fees
7,800
- ------------------------------------------------------------------------
- ------------
Administrative personnel and services
322,212
- ------------------------------------------------------------------------
- ------------
Custodian and portfolio accounting fees
158,209
- ------------------------------------------------------------------------
- ------------
Transfer and dividend disbursing agent fees and expenses
514,590
- ------------------------------------------------------------------------
- ------------
Shareholder services fees
851,288
- ------------------------------------------------------------------------
- ------------
Capital stock registration fees
55,700
- ------------------------------------------------------------------------
- ------------
Auditing fees
10,000
- ------------------------------------------------------------------------
- ------------
Legal fees
6,800
- ------------------------------------------------------------------------
- ------------
Printing and postage
44,000
- ------------------------------------------------------------------------
- ------------
Taxes
44,000
- ------------------------------------------------------------------------
- ------------
Insurance premiums
9,000
- ------------------------------------------------------------------------
- ------------
Miscellaneous
5,000
- ------------------------------------------------------------------------
- ------------ ------------
Total expenses
5,220,928
- ------------------------------------------------------------------------
- ------------
Deduct--Waiver of investment advisory fee
454,454
- ------------------------------------------------------------------------
- ------------ ------------
Net expenses
4,766,474
- ------------------------------------------------------------------------
- -------------------------- --------------
Net investment income
$ 20,360,610
- ------------------------------------------------------------------------
- -------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------
- --------------------------
Net realized gain (loss) on investments and foreign currency
transactions (identified cost basis)
(15,133,203)
- ------------------------------------------------------------------------
- --------------------------
Net change in unrealized appreciation (depreciation) on investments and
foreign currency
(14,627,048)
- ------------------------------------------------------------------------
- -------------------------- --------------
Net realized and unrealized gain (loss) on investments and foreign
currency (29,760,251)
- ------------------------------------------------------------------------
- -------------------------- --------------
Change in net assets resulting from operations
($ 9,399,641)
- ------------------------------------------------------------------------
- -------------------------- --------------
</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
$ 20,360,610 $ 45,613,473
- ------------------------------------------------------------------------
- ---------
Net realized gain (loss) on investments and foreign currency
transactions ($15,133,202 net loss and $362,425 net gain,
respectively, as computed for federal tax purposes)
(15,133,203) (2,146,782)
- ------------------------------------------------------------------------
- ---------
Net change in unrealized appreciation (depreciation) on investments
and translation of assets and liabilities in foreign currencies
(14,627,048) (52,699,309)
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets resulting from operations
(9,399,641) (9,232,618)
- ------------------------------------------------------------------------
- --------- -------------- --------------
NET EQUALIZATION (DEBITS)/CREDITS
(1,938,150) 3,241,019
- ------------------------------------------------------------------------
- --------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------
- ---------
Dividends to shareholders from net investment income
(18,422,460) (43,554,138)
- ------------------------------------------------------------------------
- ---------
Distributions to shareholders from net realized gain on
investment transactions
- -- (790,659)
- ------------------------------------------------------------------------
- ---------
Distributions in excess of net investment income
(3,994,036) --
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets from distributions to shareholders
(22,416,496) (44,344,797)
- ------------------------------------------------------------------------
- --------- -------------- --------------
CAPITAL STOCK TRANSACTIONS--
- ------------------------------------------------------------------------
- ---------
Net proceeds from sale of shares
54,742,035 481,074,828
- ------------------------------------------------------------------------
- ---------
Net asset value of shares issued to shareholders
in payment of dividends declared
10,945,429 20,339,263
- ------------------------------------------------------------------------
- ---------
Cost of shares redeemed
(144,100,563) (300,654,866)
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets from capital stock transactions
(78,413,099) 200,759,225
- ------------------------------------------------------------------------
- --------- -------------- --------------
Change in net assets
(112,167,386) 150,422,829
- ------------------------------------------------------------------------
- ---------
NET ASSETS:
- ------------------------------------------------------------------------
- ---------
Beginning of period
892,490,239 742,067,410
- ------------------------------------------------------------------------
- --------- -------------- --------------
End of period (including undistributed net investment income of
$20,052,035 and $24,046,071, respectively)
$ 780,322,853 $ 892,490,239
- ------------------------------------------------------------------------
- --------- -------------- --------------
</TABLE>
*Six months ended November 30, 1994 (unaudited).
(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>
FOR
THE YEAR ENDED MAY 31,
1995** 1994 1993 1992
1991 1990 1989 1988 1987*
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C>
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 0.30 0.63 0.68
0.69 0.77 0.67 0.63 0.63 0.24
- ------------------------------
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.45) (0.61) 1.25
1.07 0.51 0.48 0.77 (0.34) (0.98)
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
Total from investment
operations (0.15) 0.02 1.93
1.76 1.28 1.15 1.40 0.29 (0.74)
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Dividends to shareholders
from net investment income (0.30) (0.61) (0.67)
(0.66) (0.75) (0.71) (0.60) (0.57) (0.08)
- ------------------------------
Distributions in excess of
net investment income (0.02) -- -- --
- -- -- -- -- --
- ------------------------------
Distributions to
shareholders from net
realized gain on investment
transactions -- (0.01) (0.05) --
(0.08) -- -- -- --
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.32) (0.62) (0.72)
(0.66) (0.83) (0.71) (0.60) (0.57) (0.08)
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.83 $ 12.30 $ 12.90 $
11.69 $ 10.59 $ 10.14 $ 9.70 $ 8.90 $ 9.18
- ------------------------------ --------- --------- --------- -------
- -- --------- --------- --------- --------- ---------
TOTAL RETURN*** (1.21%) 0.01% 17.02%
17.07% 13.44% 12.13% 16.47% 3.21% (7.74%)
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 1.14 (b) 1.11% 1.07%
1.10% 1.03% 1.05% 1.08% 1.04% 0.53%(b)
- ------------------------------
Net investment income 4.86 (b) 4.92% 5.45%
6.01% 7.12% 6.77% 6.92% 7.18% 7.95%(b)
- ------------------------------
Expense waiver/
reimbursement (a) 0.11 (b) 0.12% 0.05%
0.11% 0.61% 1.39% 0.86% 1.00% 0.97%(b)
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $780,323 $892,490 $742,067
$247,482 $66,578 $29,844 $13,476 $9,256 $6,305
- ------------------------------
Portfolio turnover rate 27% 28% 27%
26% 53% 49% 17% 23% 12%
- ------------------------------
</TABLE>
* 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 Fund shares which commenced
on
January 30, 1987.
** Six months ended November 30, 1994 (unaudited).
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense
and net
investment income ratios shown above.
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Fortress Utility Fund, Inc.
Notes to Financial Statements
- ------------------------------------------------------------------------
- --------
November 30, 1994
(unaudited)
(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.
A. 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.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in
the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral 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 (the "Directors"). Risks may arise from
the
potential inability of counterparties to honor the terms of the
repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase
price on the sale of collateral securities.
C. 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").
D. 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.
Additionally, net
capital losses of $2,507,402 attributable to security transactions
incurred
after October 31, 1993, are treated as arising on June 1, 1994, the
first day of
the Fund's next taxable year.
Fortress Utility Fund, Inc.
- ------------------------------------------------------------------------
- --------
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
theses 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, 1994, is $2,109,940 which will expire in 1998.
E. 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.
F. 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.
G. RECLASSIFICATIONS--During the current period, the Fund adopted
Statement of
Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital
Distributions
by Investment Companies. Accordingly, permanent book and tax
differences
have been reclassified to paid-in-capital. As of June 1, 1994, the
cumulative effect of such differences, totaling $260,348, was
reclassified
from undistributed net investment income and accumulated
undistributed net
realized gain on investments to paid-in capital. Net investment
income, net
realized gains, and net assets were not affected by this change.
H. RESTRICTED SECURITIES--Restricted securities are securities that
may only
be resold upon registration under Federal securities laws or in
transactions exempt from such registration. In some cases, the
issuer of
restricted securities has agreed to register such securities for
resale, at
the issuer's expense either upon demand by the Fund or in
connection with
another registered offering of the securities. Many restricted
securities
may be resold in the secondary market in transactions exempt from
registration.
Such restricted securities may be determined to be liquid under
criteria
established by the Board of Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted
securities are
valued at the price provided by dealers in the secondary market or,
if no
market prices are available, at the fair value as determined by the
Fund's
pricing committee. Additional information on each restricted
security held
at November 30, 1994, 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
Philippine Long Distance
12/22/92-10/25/94 4,517,250
Westinghouse Electric Corp.
3/22/94 22,771,880
Telekom Malaysia Berhad
10/3/94 11,000,000
Nacional Financiera
5/11/94-11/28/94 26,643,875
</TABLE>
I. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At November 30, 1994, 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
4,597,180 37,006,327
- ------------------------------------------------------------------------
- ------------
Shares issued to shareholders
in payment of dividends declared
928,478 1,579,370
- ------------------------------------------------------------------------
- ------------
Shares redeemed
(12,148,480) (23,548,310)
- ------------------------------------------------------------------------
- ------------ ------------- -------------
Net change resulting from capital stock transactions
(6,622,822) 15,037,387
- ------------------------------------------------------------------------
- ------------ ------------- -------------
</TABLE>
* Six months ended November 30, 1994.
(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") 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.
Fortress Utility Fund, Inc.
- ------------------------------------------------------------------------
- --------
TRANSFER AND DIVIDEND DISBURSING AGENT--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.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Agreement
with
Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25
of 1% of
average net assets of the Fund for the period. This fee is to obtain
certain
personal services for shareholders and to maintain shareholder accounts.
Certain of the Officers and Directors of the Fund are Officers and
Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for
the six
months ended November 30, 1994, were as follows:
<TABLE>
<S>
<C>
- ------------------------------------------------------------------------
- --------------------------
PURCHASES
$ 221,841,666
- ------------------------------------------------------------------------
- -------------------------- --------------
SALES
$ 290,906,284
- ------------------------------------------------------------------------
- -------------------------- --------------
</TABLE>
Directors Officers
- ------------------------------------------------------------------------
- --------
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
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by
any
bank, and are not insured or guaranteed by the U.S. government, 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
349561100
8010410 (1/95)
APPENDIX
A. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant indicating the components of the
corresponding mountain chart. The lighter shaded portion represents the
value of reinvested income for the Fund. The dark shaded portion
reflects the principal value of a $8,000 investment in Fortress Utility
Fund, Inc. (the "Fund"). The color-coded mountain chart is a visual
representation of the narrative text above it, which shows that an
initial investment of $8,000 in the Fund on January 30, 1987, would have
grown to $15,123 on November 30, 1994. The "x" axis reflects
computation periods from January 30, 1987 (the Fund's inception date) to
November 30, 1994. The right margin of the chart reflects the ending
value of a hypothetical investment of $8,000 in the Fund measured in
increments of $3,000 ranging from $0 to $18,000.
B. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant indicating the components of the
corresponding mountain chart. The lighter shaded portion represents the
value of reinvested income for the Fund. The dark shaded portion
reflects the principal value of annual $1,000 investments in the Fund.
The color-coded mountain chart is a visual representation of the
narrative text above it, which shows that an annual investment of $1,000
in the Fund on January 30, 1987, would grow to $11,725 on November 30,
1994. The "x" axis reflects computation periods from January 30, 1987
(the Fund's inception date) to November 30, 1994. The right margin of
the chart reflects the ending value of a hypothetical annual $1,000
investment in the Fund measured in increments of $3,000 ranging from $0
to $18,000.
C. The graphic representation here displayed consists of a boxed
legend in the upper left quadrant indicating the components of the
corresponding mountain chart. The dark shaded portion reflects the
annual dividend and capital gains payments made on a $50,000 investment
in the Fund. The color-coded mountain chart is a visual representation
of the narrative text above it, which shows that an investment of
$50,000 in the Fund in January 30, 1987, would generate annual dividend
and capital gains payments of $1,950, $2,818, $2,937, $3,850, $3,455,
$3,307, $3,139, and $3,110 for the periods ended November 30, 1987,
1988, 1989, 1990, 1991, 1992, 1993, and 1994, respectively. The "x"
axis reflects computation periods from November 30, 1987 to November 30,
1994. The right margin of the chart reflects the annual dividend of a
hypothetical $50,000 investment in the Fund measured in increments of
$1,000 ranging from $0 to $5,000.
