<PAGE>
----------------------------------------------------
Dear Shareholder:
LETTER
TO SHAREHOLDERS
--------------------------------------------
FEBRUARY 10, 1994
Once again in 1993, utility stocks outperformed
the broad stock market; Standard & Poor's Utility
Index* rose 14.5%, while the S&P 500 rose 10.1%. This
performance may be attributed to the continued
decline in interest rates and the tentative economic
recovery in the U.S., events that favor defensive
stocks.
In this environment, Prudential's Utility Fund
performed well in 1993; Class A shares ranked #10 and
Class B shares ranked #12 for total return out of 42
utility funds monitored by Lipper Analytical Services
for the 12 months ended December 31, 1993. We are
also pleased that our Fund continued its excellent
long-term record: Over the past 10 years ended
December 31, 1993, Class B shares were ranked #1 out
of 8 utility funds.**
A SHIFT IN THINKING
In our last report, we did not expect utility
stocks to outperform the broad stock market for much
longer, based on today's historically low levels of
inflation and interest rates. We may have spoken a
bit too soon, but a growing number of industry
observers think it is prudent to rethink the outlook
for utilities, especially U.S. electric company
stocks.
The traditional thinking about utilities -- that
they show slow-but-steady earnings and pay regular,
often rising, dividends -- gave way last fall as
Standard & Poor's put 40 electric companies on its
"Credit Watch" list. S&P cited increased competition
as the cause for its concern.
INVESTING AGAINST CONVENTIONAL WISDOM
Until recently, most investors were content to
follow conventional wisdom when investing in
electrics. For example, one tenet of this mainstream
approach was to look for electric companies earning
high rates of return, since rising profits normally
make for rising dividends. Since the mid-1980s, most
public utility commissions in the U.S. have reduced
the rate of return they allow electric companies to
earn, from 15% to just under 12% last year. This
trend coincides with a steady decline in interest
rates. As rates have fallen, so has the cost of
financing their operations; regulators want consumers
to benefit from electric companies' cost savings.
*The S&P Utility Index is an unmanaged composite
of 47 utility stocks, primarily traded on the NYSE and
included in the S&P 500. Currently, the S&P Utility
Index is comprised of more telephone and electric
stocks and fewer natural gas stocks than the Fund.
**Source: Lipper Analytical Services, Inc. The
Lipper rankings do not take sales charges into
consideration, which could affect the Fund's ranking.
Class B shares ranked #10 for the 5-year period of 17
funds. Class A shares have been available for less than
5 years and therefore a more complete Lipper ranking
does not yet exist. As always, past performance is not
indicative of future results. Class A shares are
subject to a maximum 5.25% front-end sales load; Class
B shares are subject to a 5%, 4%, 3%, 2%, 1% and 1%
contingent deferred sales charge for the first six
years. Both Class A and B shares share a common
portfolio.
--3--
<PAGE>
AS INTEREST RATES HAVE FALLEN STEADILY SINCE THE 1980S,
PRICES OF ELECTRIC
COMPANY STOCKS HAVE RALLIED.
FALLING INTEREST RATES ...
30-YEAR U.S. TREASURY BOND QUARTER-END YIELDS
1984-1993
[GRAPHIC]
... HAVE CREATED STEADY PRICE INCREASES FOR ELECTRIC
COMPANY STOCKS.
UTY (UTILITY) INDEX* QUARTER-END VALUES 1984-1993
[GRAPHIC]
*The UTY is an unmanaged futures index of 20 electric
companies that is traded on the Philadelphia Exchange.
Past performance is no guarantee of future
results. These charts are for illustrative purposes
only and do not represent the performance of any
specific security in the Fund's portfolio.
--4--
<PAGE>
SHOPPING FOR SPECIAL SITUATIONS
Since 1989, we have looked for electric companies
with returns on equity that are BELOW the level
permitted by regulators. We believe companies that
generate earnings and dividend growth WITHOUT having
to ask for rate increases have a competitive
advantage. Special situation electric companies fit
that description. They are recovering from a period
of financial stress, usually the result of a failed
attempt at diversification or nuclear power
generation. In many cases, the stress caused a
decrease or an omission in the dividend. But, as most
of these ills have been remedied, dividends have been
reinstated or increased, counter to the industry
trend.
We have had success with special situation
electrics and continued to trim our exposure during
the last year. We also sold electric companies in
general: by the end of December, only one of our ten
largest holdings was an electric company. The
proceeds from the sales of these stocks were put
primarily into natural gas stocks because we think
this utility sector holds a lot of promise.
IN 1994
We believe the utility market is now more
segmented than ever before. Natural gas stocks,
foreign utilities and some special electric stocks
may fare well if the global economy continues to
expand and oil prices begin to rise. On the other
hand, domestic electric companies probably will not
match the stellar returns they produced in the last
decade. We plan to downplay this sector in favor of
international utilities, natural gas pipelines as
well as domestic telecommunications companies.
As always, it is a pleasure to have you as a
shareholder of the Prudential Utility Fund and to
take the opportunity to report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Warren E. Spitz
Portfolio Manager
--5--
<PAGE>
Q&A
- ------------------------------------------------------
PORTFOLIO
-----------------------
FOLLOWING IS AN
INTERVIEW WITH WARREN SPITZ, PORTFOLIO
MANAGER OF THE
PRUDENTIAL UTILITY FUND.
Q. WHAT IS RETAIL
WHEELING?
A. Last year, Congress
amended the National
Energy Policy Act, the
legislation
that regulates electric
companies, effectively
curbing
some
control these companies
have over their
transmission lines.
The
new law says utilities,
which formerly had
exclusive control
over
their service territories
-- power generation and
transmission,
-- must now act as
middlemen when another
utility or third
------------------------------------
----------------------------------------
party wants to move
electricity over their
lines. This is the
concept
- ------------------
WARREN SPITZ
known as retail wheeling.
In some states it's
possible for large
consumers
(cities, for example) to
purchase power from an
independent
company.
Q. WHAT IMPACT WILL
RETAIL WHEELING
HAVE ON THE
ELECTRIC UTILITY
INDUSTRY?
A. Retail wheeling probably
won't have much impact on
electric
companies
right now, but in the
future it could shift the
balance away
from
the seller in favor of
consumers. Think of the
break-up of
AT&T
more than a decade ago.
Once upon a time, if you
wanted to
make
a phone call, "Ma Bell"
was the only game in
town.
Deregulation
changed all that,
especially in the
"transmission" of phone
calls.
Today, MCI and Sprint are
just two of the companies
you can
choose
for your long-distance
calls. A number of
regional
telephone
operators have sprung up
too. Telephone industry
deregulation
increased competition,
giving consumers a wider
range of
choices
and sometimes lower
prices for essential
services. Retail
wheeling
is probably the first
step toward deregulation
of the utility industry.
Q. WHAT DO STANDARD &
POOR'S DOWNGRADES
MEAN?
A. Among other criteria,
Standard & Poor's
downgrades companies
when
it thinks their earnings
will be impaired. In the
case of electric
companies,
which have enjoyed
monopolistic control of
their
markets,
competition could reduce
profits, forcing
managements to
reduce
dividends. Inefficient,
high-cost producers are
the most
vulnerable
to price declines. Still,
I don't think increased
competition
is
a reason to abandon the
sector altogether. But,
investors who still
view
electric stocks as
bastions of stability
(or, a haven for ever-
increasing
income) may be
disappointed. My view is
at work in the
portfolio;
pay closer attention to
companies with a chance
of
maintaining
or increasing both their
earnings and dividends
and pay less
to
current income, which
should be true for all
utilities.
Q. WHAT'S YOUR
SUGGESTION FOR
INVESTORS?
A. I'll tell you what I'm
doing in the portfolio.
I've used the profits
made
in electric stocks to buy
into other utility
sectors where I see
potential.
Only one of our ten
largest holdings is an
electric
company
-- Gulf States Utilities
(2.1% of assets on
12/31/93). Four of
our
largest holdings are
natural gas companies
(29.6% of the
portfolio
as of 12/31/93), and two
of them are non-U.S.
companies. I'm
positioning
the Fund more toward gas
stocks and foreign
companies.
- ------------------------------------------------
--6--
<PAGE>
PRUDENTIAL UTILITY FUND PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1993
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
VALUE
(NOTE
SHARES DESCRIPTION VALUE SHARES DESCRIPTION 1)
(NOTE 1)
</TABLE>
<TABLE>
<C> <S> <C>
LONG-TERM INVESTMENTS--88.2%
COMMON STOCKS--84.1%
COMMUNICATIONS--22.2%
993,600 Ameritech Corp............................. $ 76,258,800
1,050,000 BCE, Inc................................... 36,618,750
867,900 Bell Atlantic Corp......................... 51,206,100
855,200 BellSouth Corp............................. 49,494,700
8,200,000 British Telecommunications PLC (ADR) 57,126,825
(United Kingdom)..........................
1,322,400 GTE Corp................................... 46,284,000
1,175,000 MTC Electronic Technologies, Ltd........... 10,942,188
2,037,600 NYNEX Corp................................. 81,758,700
1,500,000 Pacific Telesis Group...................... 81,000,000
165,000 Rochester Telephone Corp................... 7,445,625
17,700,000 SIP (Italy)................................ 37,163,292
2,719,200 Southern New England Telecommunications 98,231,100
Corp......................................
3,769,300 Sprint Corp................................ 130,983,175
14,147,500 STET (Italy)............................... 36,248,583
1,346,000 Telebras (ADR) (Brazil).................... 45,679,875
2,550,000 Telefonica de Espana (ADR) (Spain)......... 99,450,000
1,576,300 Telefonos de Mexico (ADR) (Mexico)......... 106,400,250
1,713,700 U.S. West, Inc............................. 78,615,988
--------------
1,130,907,951
--------------
ELECTRIC POWER--34.7%
253,028 AES Corp................................... 8,824,352
243,200 American Electric Power, Inc............... 9,028,800
400,000 Boston Edison Co........................... 11,900,000
1,000,000 California Energy, Inc.*................... 18,500,000
2,336,500 Centerior Energy Corp...................... 30,666,563
701,800 Central Hudson Gas & Electric Co........... 21,317,175
1,033,400 Central Louisiana Electric Co.............. 25,576,650
744,900 Central Maine Power Co..................... $ 11,173,500
5,200,000 China Light & Power Co., Ltd. (Hong 38,020,055
Kong).....................................
910,200 Cincinnati Gas & Electric Co............... 25,030,500
3,700,000 CMS Energy Corp............................ 92,962,500
2,804,600 Commonwealth Edison Co..................... 79,229,950
1,960,160 Companhia Energetica de Minas (ADR) 35,121,747
(Brazil)*.................................
63,200 Destec Energy, Inc.*....................... 908,500
2,200,600 Detroit Edison Co.......................... 66,018,000
1,121,400 DPL, Inc................................... 23,128,875
763,700 DQE, Inc................................... 26,347,650
896,300 Eastern Utilities Assoc.................... 25,096,400
1,710,200 El Paso Electric Co.*/**................... 4,596,163
1,247,700 Empresa Nacional de Electricidad (ADR) 59,265,750
(Spain)...................................
300,000 Enersis (ADR) (Spain)...................... 7,050,000
1,562,700 Entergy Corp............................... 56,257,200
250,000 Evn Energ Versorg (Austria)................ 32,089,399
2,937,800 General Public Utilities Corp.............. 90,704,575
5,316,200 Gulf States Utilities Co.*................. 106,324,000
6,300,000 Iberdrola (Spain).......................... 45,110,022
3,351,700 Illinois Power Co.......................... 74,156,363
887,600 Kansas City Power & Light Co............... 20,414,800
89,600 Kenetech Corp.*............................ 1,797,600
3,625,000 Long Island Lighting Co.................... 88,359,375
6,000,000 National Power PLC 42,774,276
(United Kingdom)*.........................
1,864,600 New York State Electric & Gas Corp......... 57,336,450
1,160,000 Niagara Mohawk Power Corp.................. 23,490,000
1,018,200 NIPSCO Industries, Inc..................... 33,473,325
2,473,900 Northeast Utilities Co..................... 58,755,125
770,000 Oester Elektrizita (Austria)............... 46,923,108
</TABLE>
See Notes to Financial Statements.
--7--
<PAGE>
PRUDENTIAL UTILITY FUND
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
VALUE
(NOTE
SHARES DESCRIPTION VALUE SHARES DESCRIPTION 1)
(NOTE 1)
</TABLE>
<TABLE>
<C> <S> <C>
ELECTRIC POWER (CONT'D)
3,011,900 Philadelphia Electric Co................... $ 91,109,975
2,103,400 Pinnacle West Capital Corp................. 47,063,575
499,700 PowerGen PLC 4,015,979
(United Kingdom)*.........................
2,612,400 PSI Resources, Inc......................... 69,228,600
274,100 Public Service Co. of Colorado............. 8,805,463
2,057,000 Public Service Co. of 23,141,250
New Mexico*...............................
921,200 Rochester Gas & Electric Corp.............. 24,181,500
1,098,100 Sithe Energies, Inc.*...................... 14,275,300
1,922,900 Southern Co................................ 84,847,964
115,000 United Illuminating Co..................... 4,628,750
--------------
1,769,027,104
--------------
NATURAL GAS--27.2%
3,148,000 Arkla, Inc................................. 24,790,500
283,650 Bay State Gas Co........................... 8,084,025
2,521,300 British Gas PLC (ADR) 129,846,950
(United Kingdom)..........................
850,000 Burlington Resources, Inc.................. 36,018,750
3,962,875 Coastal Corp............................... 111,455,859
2,500,000 Columbia Gas System, Inc.*/**.............. 55,937,500
1,100,000 Consolidated Natural Gas Co................ 51,700,000
5,000 Eastern Enterprises, Inc................... 127,500
1,477,600 El Paso Natural Gas Co..................... 53,193,600
500,000 Energen Corp............................... 10,750,000
1,356,000 Enron Corp................................. 39,324,000
2,782,900 ENSERCH Corp............................... 45,222,125
1,500,000 Equitable Resources, Inc................... 54,937,500
690,300 KN Energy, Inc............................. 17,775,225
1,210,600 NICOR, Inc................................. 33,896,800
700,000 Oryx Energy Co............................. 12,075,000
3,544,300 Pacific Enterprises........................ 84,177,125
4,806,900 Panhandle Eastern Corp..................... 113,563,013
117,600 Providence Energy Corp..................... 2,278,500
1,880,400 Questar Corp............................... $ 62,053,200
990,000 Sonat Offshore Drilling, Inc............... 15,840,000
3,561,400 Sonat, Inc................................. 102,835,425
205,400 Southwest Gas Corp......................... 3,286,400
802,500 Talisman Energy, Inc.*..................... 17,607,339
521,800 Tejas Power Corp.*......................... 5,087,550
7,700,000 TransCanada Pipelines, Ltd. (Canada)....... 117,240,400
1,916,300 Transco Energy Co.......................... 27,067,738
2,200,000 Westcoast Energy, Inc...................... 36,300,000
4,396,450 Williams Cos., Inc......................... 107,163,462
161,150 Yankee Energy System, Inc.................. 3,968,319
--------------
1,383,603,805
--------------
4,283,538,860
Total common stocks
(cost $3,518,021,463).....................
--------------
PREFERRED STOCKS
ELECTRIC POWER
El Paso Electric Co. */**
7,000 $8.24...................................... 504,000
10,300 $8.44...................................... 741,600
5,700 $8.95...................................... 410,400
--------------
1,656,000
Total preferred stocks
(cost $1,158,100)........................
--------------
PRINCIPAL
AMOUNT
(000)
- ---------
BONDS--4.1%
COMMUNICATIONS
MTC Electronic Technologies, Ltd.,
$2,250 8.00%, 7/31/03............................. 2,576,250
--------------
ELECTRIC POWER--1.7%
Arkansas Power & Light Co.,
5,000 10.00%, 2/1/20............................. 5,373,250
</TABLE>
See Notes to Financial Statements.
--8--
<PAGE>
PRUDENTIAL UTILITY FUND
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C> <C>
PRINCIPAL DESCRIPTION VALUE PRINCIPAL DESCRIPTION VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE
(000) (000) 1)
</TABLE>
<TABLE>
<C> <S> <C>
ELECTRIC POWER (CONT'D)
Cincinnati Gas & Electric Co.,
$ 6,500 9.70%, 6/15/19............................. $ 7,003,620
10,000 10.20%, 12/1/20............................ 11,625,000
Cleveland Electric Illumination Co.,
10,000 9.375%, 3/1/17............................. 10,037,500
Commonwealth Edison Co.,
10,000 9.625%, 7/1/19............................. 10,649,300
Niagara Mohawk Power Corp.,
10,000 9.50%, 3/1/21.............................. 11,299,900
Ohio Edison Co.,
10,000 9.75%, 7/15/19............................. 10,875,100
Texas Utilities Co.,
5,000 9.75%, 5/1/21.............................. 6,031,150
Virginia Electric & Power Co.,
10,000 9.75%, 2/1/19.............................. 10,660,300
--------------
83,555,120
--------------
NATURAL GAS--2.4%
Arkla, Inc.,
20,000 10.00%, 11/15/19........................... 23,000,000
Burlington Resources, Inc.,
10,000 8.50%, 10/1/01............................. 11,257,900
15,000 9.125%, 10/1/21............................ 18,072,600
Coastal Corp.,
5,000 8.125%, 9/15/02............................ 5,231,900
15,000 9.625%, 5/15/12............................ 17,245,800
Columbia Gas System, Inc.,*/**
2,500 10.25%, 5/1/99............................. 2,921,875
1,031 10.25%, 8/1/11............................. 1,257,810
1,000 10.50%, 6/1/12............................. 1,200,000
8,180 10.15%, 11/1/13............................ 9,816,000
Oryx Energy Co.,
2,000 9.50%, 11/1/99............................. 2,153,120
1,000 7.50%, 5/15/14............................. 965,000
Transcontinental Gas Pipe Line,
11,000 8.875%, 9/15/02............................ 11,591,140
Williams Cos., Inc.,
$ 15,000 8.875%, 9/15/12............................ $ 16,925,100
--------------
121,638,245
--------------
207,769,615
Total bonds
(cost $191,604,930)......................
--------------
4,492,964,475
Total long-term investments
(cost $3,710,784,493)....................
--------------
SHORT-TERM INVESTMENTS--12.5%
BONDS--7.1%
First Union National Bank of
North Carolina,
105,569 3.00%, 1/3/94.............................. 105,569,000
Republic National Bank,
254,000 3.188%, 1/3/94............................. 254,000,000
--------------
359,569,000
Total bonds
(cost $359,569,000)......................
--------------
REPURCHASE AGREEMENT--5.4%
Joint Repurchase Agreement Account,
274,219 3.153%, 1/3/94
274,219,000
(cost $274,219,000; Note 5)................
--------------
633,788,000
Total short-term investments
(cost $633,788,000)......................
--------------
5,126,752,475
TOTAL INVESTMENTS--100.7%
(cost $4,344,572,493; Note 4)............
(34,512,175)
Liabilities in excess of other
assets--(0.7%)...........................
--------------
$5,092,240,300
NET ASSETS--100%...........................
--------------
--------------
</TABLE>
-------------------
*Non-income producing securities.
**Issuer in bankruptcy.
ADR--American Depository Receipt.
See Notes to Financial Statements.
--9--
<PAGE>
PRUDENTIAL UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1993
-----------------
<S> <C>
Investments, at value (cost $4,344,572,493)........................................... $ 5,126,752,475
Dividends and interest receivable..................................................... 17,346,113
Receivable for Fund shares sold....................................................... 7,348,316
Deferred expenses and other assets.................................................... 97,358
-----------------
Total assets...................................................................... 5,151,544,262
-----------------
LIABILITIES
Payable for investments purchased..................................................... 42,257,025
Payable for Fund shares reacquired.................................................... 9,277,411
Distribution fee payable.............................................................. 4,055,409
Accrued expenses and other liabilities................................................ 2,035,501
Management fee payable................................................................ 1,678,616
-----------------
Total liabilities................................................................. 59,303,962
-----------------
NET ASSETS............................................................................ $ 5,092,240,300
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 5,255,245
Paid-in capital in excess of par.................................................... 3,865,379,704
-----------------
3,870,634,949
Undistributed net investment income................................................. 415,726,618
Accumulated net realized gain on investments........................................ 23,384,058
Net unrealized appreciation on investments and foreign currencies................... 782,494,675
-----------------
Net assets, December 31, 1993....................................................... $ 5,092,240,300
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($336,635,764 DIVIDED BY 34,645,133 shares of common stock issued and
outstanding)....................................................................... $ 9.72
Maximum sales charge (5.25% of offering price)...................................... .54
Maximum offering price to public.................................................... $10.26
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($4,755,604,536 DIVIDED BY 490,879,345 of common stock issued and outstanding)... $ 9.69
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
--10--
<PAGE>
PRUDENTIAL UTILITY FUND
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NET INVESTMENT INCOME 1993
------------
<S> <C>
Income
Dividends (net of
foreign withholding
taxes of
$2,647,319).......... $139,439,683
Interest (net of
foreign withholding
taxes of $10,875).... 42,346,733
------------
Total income......... 181,786,416
------------
Expenses
Distribution fee--Class
A..................... 573,660
Distribution fee--Class
B..................... 43,080,963
Management fee......... 18,383,363
Transfer agent's fees
and expenses.......... 6,400,000
Reports to
shareholders.......... 1,180,000
Custodian's fees and
expenses.............. 660,000
Registration fees...... 505,000
Insurance.............. 114,000
Legal fees............. 81,000
Audit fee.............. 62,000
Directors' fees........ 54,000
Miscellaneous.......... 34,354
------------
Total expenses....... 71,128,340
------------
Net investment income.... 110,658,076
------------
REALIZED AND UNREALIZED
GAIN (LOSS)
ON INVESTMENTS AND
FOREIGN CURRENCY
TRANSACTIONS
Net realized gain (loss)
on:
Security
transactions.......... 216,838,459
Foreign currency
transactions.......... (937,074)
------------
215,901,385
------------
Net change in unrealized
appreciation on:
Securities............. 257,223,087
Foreign currencies..... 540,467
------------
257,763,554
------------
Net gain on investments
and foreign currencies... 473,664,939
------------
NET INCREASE IN NET
ASSETS
RESULTING FROM
OPERATIONS............... $584,323,015
------------
------------
</TABLE>
PRUDENTIAL UTILITY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
INCREASE (DECREASE) -------------------------------
IN NET ASSETS 1993 1992
------------ --------------
<S> <C> <C>
Operations
Net investment
income................ $110,658,076 $ 107,121,511
Net realized gain on
investment and
foreign currency
transactions......... 215,901,385 89,434,724
Net change in
unrealized appre-
ciation of
investments and
foreign currencies... 257,763,554 92,759,598
------------ --------------
Net increase in net
assets resulting from
operations........... 584,323,015 289,315,833
------------ --------------
Net equalization
credits................ 95,670,312 53,394,394
------------ --------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A.............. (8,808,902) (6,100,105)
Class B.............. (99,427,992) (101,021,406)
------------ --------------
(108,236,894) (107,121,511)
------------ --------------
Distributions from net
realized gains
Class A.............. (13,264,520) (4,685,002)
Class B.............. (189,046,028) (83,068,066)
------------ --------------
(202,310,548) (87,753,068)
------------ --------------
Fund share transactions (Note 6)
Net proceeds from
shares subscribed..... 1,512,896,198 844,256,938
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions........ 260,462,818 162,399,270
Cost of shares
reacquired............ (689,440,495) (444,645,324)
------------ --------------
Net increase in net
assets from Fund
share transac-
tions................ 1,083,918,521 562,010,884
------------ --------------
Total increase........... 1,453,364,406 709,846,532
NET ASSETS
Beginning of year........ 3,638,875,894 2,929,029,362
------------ --------------
End of year.............. $5,092,240,300 $3,638,875,894
------------ --------------
------------ --------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial
Statements.
--11--
<PAGE>
PRUDENTIAL UTILITY FUND
Notes to Financial Statements
Prudential-Bache Utility Fund, Inc., doing business as Prudential Utility Fund
(the "Fund"), is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. Its investment objective is
to seek high current income and moderate capital appreciation through investment
in equity and debt securities of utility companies, principally electric, gas
and telephone companies. The ability of issuers of certain debt securities held
by the Fund to meet their obligations may be affected by economic developments
in a specific industry or region.
NOTE 1. ACCOUNTING POLICIES
The following is a summary of significant accounting
policies followed by the Fund in the preparation of
its financial statements.
SECURITIES VALUATION: Investments traded on a national securities exchange are
valued at the last reported sales price on the primary exchange on which they
are traded. Securities traded in the over-the-counter market (including
securities listed on exchanges whose primary market is believed to be
over-the-counter) and listed securities for which no sale was reported on that
date are valued at the mean between the last reported bid and asked prices.
Short-term securities which mature in more than 60 days are valued based on
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
In connection with repurchase agreements with U.S. financial institutions, it
is the Fund's policy that its custodian takes possession of the underlying
collateral securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
All securities are valued as of 4:15 P.M., New York time.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(i) market value of investment securities, other assets and liabilities--at
the closing daily rate of exchange;
(ii) purchases and sales of investment securities, income and expenses--at the
rate of exchange prevailing on the respective dates of such transactions.
Although the net assets of the Fund are presented at the foreign exchange
rates and market values at the close of the year, the Fund does not isolate that
portion of the results of operations arising as a result of changes in the
foreign exchange rates from the fluctuations arising from changes in the market
prices of securities held at the end of the year. Similarly, the Fund does not
isolate the effect of changes in foreign exchange rates from the fluctuations
arising from changes in the market prices of portfolio securities sold during
the year.
Net realized losses on foreign currency transactions of $937,074 represents
net foreign exchange losses from sales and maturities of short-term securities,
disposition of foreign currency, gains or losses realized between the trade and
settlement dates on security transactions, and the difference between amounts of
dividends, interest and foreign withholding taxes recorded on the Fund's books
and the US dollar equivalent amounts actually received or paid. Net currency
gains and losses from valuing foreign currency denominated assets, except
portfolio securities, and liabilities at year end exchange rates are reflected
as a component of unrealized appreciation on foreign currencies.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin as a result of,
among other factors, the possibility of political and economic instability and
the level of governmental supervision and regulation of foreign securities
markets.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
and currencies are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis. The Fund amortizes discounts on purchases of portfolio securities as
adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
and paid quarterly. The Fund will distribute at least annually any net capital
gains in excess of loss carryforwards. Dividends and distributions are recorded
on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
--12--
<PAGE>
EQUALIZATION: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of shares
of common 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 reacquisitions of the Fund's shares.
TAXES: It is the Fund's policy to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to its shareholders. Therefore, no
federal income tax provision is required.
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.
RECLASSIFICATION OF CAPITAL ACCOUNTS: Effective January 1, 1993, the Fund began
accounting and reporting for distributions to shareholders in accordance with
Statement of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to disclose better the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. The effect caused by adopting this
statement was to increase paid-in capital in excess of par by $18,691,112,
decrease undistributed net investment income by $4,507,069 and decrease
accumulated net realized gain on investments by $14,184,043 compared to amounts
previously reported through December 31, 1992. For the year ended December 31,
1993, the Fund reclassified $1,704,541 of net foreign currency losses to
undistributed net investment income from accumulated net realized gains on
investments. Net investment income, net realized gains and net assets were not
affected by this change.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential
Mutual Fund Management, Inc. ("PMF"). Pursuant to this
agreement, PMF has responsibility for all investment advisory services and
supervises the subadviser's performance of such services. Pursuant to a
subadvisory agreement between PMF and The Prudential Investment Corporation
("PIC"), PIC furnishes investment advisory services in connection with the
management of the Fund. PMF pays for the cost of the subadviser's services, the
cost of compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
Prior to October 1, 1993, the management fee paid PMF was computed daily and
payable monthly at an annual rate of .60% of the Fund's average daily net assets
up to $250 million, .50% of the next $500 million, .45% of the next $750
million, .40% of the next $500 million and .35% of the average daily net assets
of the Fund in excess of $2 billion. Effective October 1, 1993, the management
fee was reduced so that it is computed as follows: .60% of the Fund's average
daily net assets up to $250 million, .50% of the next $500 million, .45% of the
next $750 million, .40% of the next $500 million, .35% of the next $2 billion,
.325% of the next $2 billion and .30% of the average daily net assets of the
Fund in excess of $6 billion.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. ("PMFD"), which acts as the distributor of the Class A shares of the Fund,
and Prudential Securities Incorporated ("PSI"), which acts as distributor of the
Class B shares of the Fund (collectively, the "Distributors"). To reimburse the
Distributors for their expenses incurred in distributing and servicing the
Fund's Class A and B shares, the Fund, pursuant to plans of distribution, pays
the Distributors a reimbursement, accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .20 of 1% of the average daily net assets of the Class A shares for the
year ended December 31, 1993. PMFD pays various broker-dealers including PSI and
Pruco Securities Corporation ("Prusec"), affiliated broker-dealers, for account
servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its distribution
related expenses with respect to Class B shares at an annual rate of up to 1% of
the average daily net assets of the Class B shares.
The Class B distribution expenses include commission credits for payments of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and service fees incurred
through the receipt of reimbursement payments from the Fund under the plans and
the receipt of initial sales charges (Class A only) and contingent deferred
sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $5,755,000 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of
--13--
<PAGE>
contingent deferred sales charges in connection with certain redemptions of
shares may exceed the total reimbursement made by the Fund pursuant to the Class
B Plan. PSI advised the Fund that for the year ended December 31, 1993, it
received approximately $4,330,000 in contingent deferred sales charges imposed
upon redemptions by certain shareholders. PSI, as distributor, has also advised
the Fund that at December 31, 1993, the amount of distribution expenses incurred
by PSI and not yet reimbursed by the Fund or recovered through contingent
deferred sales charges approximated $43,949,000. This amount may be recovered
through future payments under the Class B Plan or contingent deferred sales
charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed under the Class B Plan or recovered through
contingent deferred sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
NOTE 3. OTHER TRANSACTIONS
WITH AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a
wholly-owned subsidiary of PMF, serves as the Fund's
transfer agent. During the year ended December 31, 1993, the Fund incurred fees
of approximately $4,920,800 for the services of PMFS. As of December 31, 1993,
approximately $454,100 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations also include certain out-of-pocket
expenses paid to non-affiliates.
For the year ended December 31, 1993, PSI earned approximately $366,600 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
NOTE 4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other
than short-term investments, for the year ended
December 31, 1993, were $1,567,887,079 and $983,069,399, respectively.
The federal income tax basis of the Fund's investments at December 31, 1993
was $4,345,786,537 and, accordingly, net unrealized appreciation for federal
income tax purposes was $780,965,938 (gross unrealized
appreciation--$846,478,073; gross unrealized depreciation-- $65,512,135).
NOTE 5. JOINT REPURCHASE AGREEMENT
ACCOUNT
The Fund, along with other affiliated registered
investment companies, transfers uninvested cash
balances into a single joint account, the daily
aggregate balance of which is invested in one or more repurchase agreements
collateralized by U.S. Treasury or federal agency obligations.
As of December 31, 1993, the Fund had a 22.9% undivided interest in the
repurchase agreements in the joint account. The undivided interest for the Fund
represented $274,219,000 in principal amount. As of such date, each repurchase
agreement in the joint account and the collateral therefor was as follows:
Barclays de Zoete Wedd, Inc., 3.10%, in the principal amount of $100,000,000,
repurchase price $100,025,833, due 1/3/94; collateralized by $32,000,000 U.S.
Treasury Notes, 7.50%, due 11/15/01; $7,305,000 U.S. Treasury Notes, 8.50%, due
2/15/00 and $49,000,000 U.S. Treasury Notes, 8.875%, due 11/15/98; approximate
aggregate value including accrued interest--$102,043,014.
Bear, Stearns & Co., 3.18%, in the principal amount of $323,000,000,
repurchase price $323,085,595, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Notes, 3.875%, due 3/31/95; $5,745,000 U.S. Treasury Notes, 4.25%, due
7/31/95; $85,000 U.S. Treasury Notes, 7.375%, due 5/15/96; $30,000,000 U.S.
Treasury Notes, 5.625%, due 1/31/98 and $80,030,000 U.S. Treasury Notes, 7.50%,
due 11/15/01; approximate aggregate value including accrued
interest--$329,564,341.
Goldman, Sachs & Co., 3.10%, in the principal amount of $399,000,000,
repurchase price $399,103,075, due 1/3/94; collateralized by $363,720,000 U.S.
Treasury Bonds, 7.50%, due 11/15/16, approximate value including accrued
interest--$408,104,889.
Kidder, Peabody & Co. Inc., 3.20%, in the principal amount of $375,000,000,
repurchase price $375,100,000, due 1/3/94; collateralized by $200,000,000 U.S.
Treasury Bonds, 11.625%, due 11/15/04; $38,000,000 U.S. Treasury Bonds, 12.75%,
due 11/15/10; $11,730,000 U.S. Treasury Notes, 7.25%, due 11/15/96; $90,000 U.S.
Treasury Bonds, 9.00%, due 2/15/94 and $15,000,000 U.S. Treasury Notes, 7.375%,
due 5/15/96; approximate aggregate value including accrued
interest--$382,608,562.
NOTE 6. CAPITAL
The Fund offers both Class A and Class B shares. Class
A shares are sold with a front-end sales charge of up
to 5.25%. Class B shares are sold with a contingent deferred sales charge which
declines from 5% to zero depending on the period of time the shares are held.
Both classes of shares have equal rights as to earnings, assets and voting
privileges except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan.
The Board of Directors approved an amendment to the Fund's Articles of
Incorporation increasing the number of authorized shares to 2 billion at $.01
par value per share.
--14--
<PAGE>
Transactions in shares of common stock for the years ended December 31, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
Class A SHARES AMOUNT
- -------------------------- -------------- -----------------
<S> <C> <C>
Year ended December 31,
1993:
Shares sold............... 14,181,284 $ 187,214,286
Shares issued in
reinvestment of
dividends and
distributions........... 1,885,228 20,510,338
Shares issued as a result
of 2 for 1 stock
split................... 14,410,831 --
Shares reacquired......... (7,054,589) (86,988,577)
-------------- -----------------
Net increase in shares
outstanding............. 23,422,754 $ 120,736,047
-------------- -----------------
-------------- -----------------
Year ended December 31,
1992:
Shares sold............... 8,200,371 $ 144,749,564
Shares issued in
reinvestment of
dividends and
distributions........... 570,475 10,033,103
Shares reacquired......... (3,903,500) (69,439,087)
-------------- -----------------
Net increase in shares
outstanding............. 4,867,346 $ 85,343,580
-------------- -----------------
-------------- -----------------
<CAPTION>
Class B SHARES AMOUNT
- -------------------------- -------------- -----------------
<S> <C> <C>
Year ended December 31,
1993:
Shares sold............... 111,930,241 $ 1,325,681,912
Shares issued in
reinvestment of
dividends and
distributions........... 24,343,642 239,952,480
Shares issued as a result
of 2 for 1 stock
split................... 216,583,756 --
Shares reacquired......... (53,929,305) (602,451,918)
-------------- -----------------
Net increase in shares
outstanding............. 298,928,334 $ 963,182,474
-------------- -----------------
-------------- -----------------
Year ended December 31,
1992:
Shares sold............... 44,195,557 $ 699,507,374
Shares issued in
reinvestment of
dividends and
distributions........... 9,463,606 152,366,167
Shares reacquired......... (23,484,866) (375,206,237)
-------------- -----------------
Net increase in shares
outstanding............. 30,174,297 $ 476,667,304
-------------- -----------------
-------------- -----------------
</TABLE>
NOTE 7. CONTINGENCY
On October 12, 1993 a lawsuit was instituted against
the Fund, PMF, PIC, PSI and certain current and former
directors of the Fund. The suit was brought by plaintiffs both derivatively on
behalf of the Fund and purportedly on behalf of the class of shareholders who
purchased their shares prior to 1985. The plaintiffs seek damages on behalf of
the Fund in an unspecified amount for alleged excessive management and
distribution fees. The complaint also challenges the Alternative Purchase Plan
that was implemented in January 1990 pursuant to a shareholder vote and that
provided for the creation of two classes of Fund shares. The plaintiffs, on
behalf of the purported class seek damages and equitable relief against the Fund
and the named directors to change the classification of the shares of the class
and to compel a further vote on such plan. Although the outcome of this
litigation cannot be predicted at this time, the defendants believe they have
meritorious defenses to the claims asserted in the complaint and intend to
defend this action vigorously. In any case, Management does not believe that the
outcome of this action is likely to have a material adverse effect on the Fund's
financial position and results of operations.
<PAGE>
PRUDENTIAL UTILITY FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------
JANUARY 22, CLASS B
1990++ --------------------------------------------
YEARS ENDED THROUGH
DECEMBER 31, DECEMBER YEARS ENDED DECEMBER 31,
------------------------ 31, --------------------------------------------
1993 1992 1991 1990 1993 1992 1991 1990 1989**
------ ------ ------ ----------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE*:
Net asset value,
beginning of period.... $ 8.97 $ 8.72 $ 7.63 $ 8.78 $ 8.96 $ 8.71 $ 7.63 $ 9.17 $ 7.31
------ ------ ------ ----------- ------ ------ -------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.... .33 .38 .39 .36 .24 .31 .32 .31 .36
Net realized and
unrealized gains
(losses) on investment
and foreign currency
transactions........... 1.12 .45 1.10 (.51) 1.12 .46 1.10 (.91) 2.30
------ ------ ------ ----------- ------ ------ -------- ------ ------
Total from investment
operations.......... 1.45 .83 1.49 (.15) 1.36 .77 1.42 (.60) 2.66
------ ------ ------ ----------- ------ ------ -------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income...... (.29) (.34) (.39) (.40) (.22) (.28) (.33) (.34) (.36)
Distributions from net
realized gains......... (.41) (.24) (.01) (.60) (.41) (.24) (.01) (.60) (.44)
------ ------ ------ ----------- ------ ------ -------- ------ ------
Total
distributions....... (.70) (.58) (.40) (1.00) (.63) (.52) (.34) (.94) (.80)
------ ------ ------ ----------- ------ ------ -------- ------ ------
Net asset value, end of
period................. $ 9.72 $ 8.97 $ 8.72 $ 7.63 $ 9.69 $ 8.96 $ 8.71 $ 7.63 $ 9.17
------ ------ ------ ----------- ------ ------ -------- ------ ------
------ ------ ------ ----------- ------ ------ -------- ------ ------
TOTAL RETURN#............ 16.28% 9.88% 19.95% (1.53)% 15.27% 9.02% 19.01% (6.48)% 37.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000,000).............. $337 $201 $111 $73 $4,756 $3,438 $2,818 $2,395 $2,306
Average net assets
(000,000).............. $287 $149 $85 $51 $4,308 $3,027 $2,529 $2,315 $2,037
Ratios to average net
assets:
Expenses, including
distribution fees..... .80% .81% .87% .97%+ 1.60% 1.61% 1.67% 1.73% 1.46%
Expenses, excluding
distribution fees..... .60% .61% .67% .77%+ .60% .61% .67% .74% .73%
Net investment
income................ 3.16% 4.14% 4.69% 4.78%+ 2.36% 3.34% 3.89% 3.94% 4.19%
Portfolio turnover
rate................... 24% 24% 38% 53% 24% 24% 38% 53% 75%
<FN>
---------------
* Restated to reflect 2 for 1 stock split paid July 6, 1993 to shareholders of
record July 2, 1993.
** Based on average month-end shares outstanding.
+ Annualized.
++ Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than one full year are not
annualized.
</TABLE>
See Notes to Financial Statements.
--16--
<PAGE>
R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S
To Board of Directors and Shareholders of
Prudential Utility Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential Utility Fund (the
"Fund") at December 31, 1993, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1993 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 8, 1994
T A X I N F O R M A T I O N
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1993) as to the federal tax status of
dividends paid by the Fund during its fiscal year ended December 31, 1993.
During 1993, the Fund paid dividends of $0.70 per Class A share and $0.63 per
Class B share. Of these amounts, $0.35 represents distributions from long-term
capital gains, for both Class A and Class B shares, and is taxable as such. The
remaining $0.35 per Class A share and $0.28 per Class B share represents
dividends from ordinary income (net investment income and short term capital
gains). Further, we wish to advise you that 84.50% of the ordinary income
dividends paid in 1993 qualified for the corporate dividends received deduction
available to corporate taxpayers.
For the purpose of preparing your annual federal income tax return, however,
you should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute Form 1099-DIV.
--17--
<PAGE>
[Graphs Supplied]
THESE GRAPHS ARE FURNISHED TO YOU IN ACCORDANCE WITH SEC REGULATIONS. THEY
COMPARE A $10,000 INVESTMENT IN PRUDENTIAL UTILITY FUND (CLASS A AND CLASS B)
WITH A SIMILAR INVESTMENT IN THE STANDARD & POOR'S 500 INDEX (S&P 500) BY
PORTRAYING THE INITIAL ACCOUNT VALUES ON JANUARY 22, 1990 FOR CLASS A SHARES AND
JANUARY 1, 1984 FOR CLASS B SHARES AND SUBSEQUENT ACCOUNT VALUES AT THE END OF
EACH FISCAL YEAR (DECEMBER 31), AS MEASURED ON A QUARTERLY BASIS, BEGINNING IN
1990 FOR CLASS A SHARES AND IN 1984 FOR CLASS B SHARES. FOR PURPOSES OF THE
GRAPHS AND, UNLESS OTHERWISE INDICATED, THE ACCOMPANYING TABLES, IT HAS BEEN
ASSUMED THAT (A) THE MAXIMUM SALES CHARGE WAS DEDUCTED FROM THE INITIAL $10,000
INVESTMENT IN CLASS A SHARES; (B) THE MAXIMUM APPLICABLE CONTINGENT DEFERRED
SALES CHARGE WAS DEDUCTED FROM THE VALUE OF THE INVESTMENT IN CLASS B SHARES
ASSUMING FULL REDEMPTION ON DECEMBER 31, 1993; (C) ALL RECURRING FEES (INCLUDING
MANAGEMENT FEES) WERE DEDUCTED; AND (D) ALL DIVIDENDS AND DISTRIBUTIONS WERE
REINVESTED.
THE S&P 500 IS A CAPITAL-WEIGHTED INDEX, REPRESENTING THE AGGREGATE MARKET
VALUE OF THE COMMON EQUITY OF 500 STOCKS PRIMARILY TRADED ON THE NEW YORK STOCK
EXCHANGE. THE S&P 500 IS AN UNMANAGED INDEX AND INCLUDES THE REINVESTMENT OF ALL
DIVIDENDS, BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY
FEES ASSOCIATED WITH AN INVESTMENT IN THE FUND. THE SECURITIES WHICH COMPRISE
THE S&P 500 MAY DIFFER SUBSTANTIALLY FROM THE SECURITIES IN THE FUND'S
PORTFOLIO. THE S&P 500 IS NOT THE ONLY INDEX WHICH MAY BE USED TO CHARACTERIZE
PERFORMANCE OF UTILITY FUNDS AND OTHER INDEXES MAY PORTRAY DIFFERENT COMPARATIVE
PERFORMANCE.
--18--
<PAGE>
Chart entitled Prudential Mutual Funds: Risk/Reward Spectrum.
The chart shows a graphic representation of the spectrum of risks of various
categories of Prudential Mutual Funds including stock funds, tax-exempt bond
funds, taxable bond funds and global taxable bond funds. The chart rates the
risk of individual Prudential Mutual Funds relative to other Prudential Mutual
Funds in each category.
Under the category of stock funds, the chart lists from low risk to high risk
the following funds (beginning at the low end of the spectrum):
FlexiFund (The Conservatively Managed Portfolio)
IncomeVertible Fund
FlexiFund (The Strategy Portfolio)
Equity Income Fund
Utility Fund
Global Utility Fund
Equity Fund
Growth Fund
Global Fund
Nicholas-Applegate Growth Equity Fund
Growth Opportunity Fund
Multi-Sector Fund
Global Natural Resources Fund
Global Genesis Fund
Pacific Growth Fund
Under the category of tax-exempt bond funds, the chart lists from low risk to
high risk the following funds (beginning at the low end of the spectrum):
Municipal Bond Fund (Modified Term Series)
Municipal Bond Fund (Insured Series)
National Municipals Fund
Municipal Series Fund (State Series Fund)
California Municipal Fund (California Income Series)
Municipal Bond Fund (High Yield Series)
Under the category of taxable bond funds, the chart lists from low risk to high
risk the following funds (beginning at the low end of the spectrum):
Adjustable Rate Securities Fund
The BlackRock Government Income Fund
Structured Maturity Fund (Income Portfolio)
Government Securities Trust (Intermediate Term Series)
<PAGE>
GNMA Fund
Government Plus Fund
U.S. Government Fund
High Yield Fund
Under the category of global taxable bond funds, the chart lists from low risk
to high risk the following funds (beginning at the low end of the spectrum):
Short-Term Global Income Fund (Global Assets Portfolio)
Short-Term Global Income Fund (Short-Term Global Income Portfolio)
Intermediate Global Income Fund
<PAGE>
PERFORMANCE CHARTS
A. Historical Investment Results
The chart shows comparative historical investment results for the one-year,
five-year and since inception periods ended December 31, 1993 for the Class A
shares of the Fund, the Class B shares of the Fund and the Lipper Utility Fund
Average and without taking into account front-end or contingent deferred sales
charges.
B. Average Annual Total Returns
The chart also shows the average annual total returns for the one-year, five-
year and since inception periods ended December 31, 1993 for Class A and Class B
shares taking into account any applicable sales charges.
<PAGE>
MOUNTAIN CHARTS
Two mountain charts show the growth of an assumed investment of $10,000 in
Prudential Utility Fund. The charts represent historical performance and are not
a guarantee of future performance of Class A shares or Class B shares.
A. Class A shares
The chart shows the growth of a $10,000 investment in Class A shares from
inception on January 22, 1990 through December 31, 1993, and assumes a front-end
sales charge of 5.25%. The chart shows the value of the investment as of
December 31, 1993 (i) with the reinvestment of dividends and distributions in
additional shares of the Fund and (ii) with all dividends and distributions
taken in cash.
B. Class B shares
The chart shows the growth of a $10,000 investment in Class B shares from
inception on August, 10, 1981 through December 31, 1993, and does not assume the
effect of a contingent deferred sales charge on redemptions. The chart shows the
value of the investment as of December 31, 1993 (i) with the reinvestment of
dividends and distributions in additional shares of the Fund and (ii) with all
dividends and distributions taken in cash.
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SEC REQUIRED CHARTS
The following two charts compare a $10,000 investment in Class A shares and
Class B shares, with a similar investment in the S&P 500 Composite Index.
Included in the charts are the average annual total returns for each Class for
the one-year, five-year and since inception periods with and without sales
charges.
