ANNUAL REPORT December 31,1994
Prudential
Utility
Fund
<ICON>
(LOGO)
<PAGE>
Prudential
Utility Fund At A Glance
The Fund seeks high current income and moderate capital appreciation through
investments in utility companies, including electric, gas, gas pipeline,
telephone, telecommunications, water and cable companies.
<TABLE>
Cumulative Total Returns1
As of 12/31/94
<CAPTION>
One Year Five Year Ten Year Since Inception2
<S> <C> <C> <C> <C>
Class A -7.9% N/A N/A +41.0%
Class B -8.5 +28.0% +246.8% +587.7
Class C N/A N/A N/A -6.3
Lipper Utility Fund Average3 -9.0 +37.5 +174.4 +304.1
S&P Utility Index* -7.9 +27.3 +266.3 +610.1
S&P 500** +1.3 +51.8 +281.9 +564.5
<CAPTION>
Average Annual Total Returns1 As of 12/31/94
One Year Five Year Ten Year Since Inception2
<S> <C> <C> <C> <C>
Class A -12.5% N/A N/A +6.1%
Class B -13.5 +4.9% +13.3% +15.5
Class C N/A N/A N/A -7.3
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Fund charges a maximum front-end sales load of 5% for Class
A shares and a contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%,
1% and 1% for six years, for Class B shares. Class C shares have a 1% CDSC
for one year. Beginning in February 1995, Class B shares will automatically
convert to Class A shares on a quarterly basis, after approximately
seven years.
2 Inception dates: 1/22/90 Class A; 8/10/81 Class B; 8/1/94 Class C.
3 Lipper utility fund averages include 66 funds for one year, 18 funds
for five years, 8 funds for 10 years and 5 funds since inception of the
Class B shares on 8/10/81. Five Largest Equity Holdings
* The S&P Utility Index is a widely-used weighted index of 40 electric, gas
and telephone utility stocks, believed to provide a broad indicator of
utility stock price movement.
**The S&P 500 is a weighted index comprised of 500 stocks, which provides a
broad indicator of stock price movements.
<PAGE>
FIVE LARGEST
EQUITY HOLDINGS
<TABLE>
<CAPTION>
% of Total
As of 12/31/94 Portfolio
<S> <C>
1. British Gas PLC 2.9%
Natural gas distributor
2. Telefonos de Mexico,
S.A. (ADR) 2.7%
Largest Mexican telephone
service company
3. Sonat Inc. 2.7%
Integrated natural gas
company
4. Coastal Corp. 2.6%
Gas pipeline company
5. Panhandle Eastern Corp. 2.5%
Gas pipeline company
</TABLE>
Understanding
Performance
Historical Investment Results represent the cumulative total returns for a
specified period. These returns assume the reinvestment of dividends and
distributions but do not take into account the applicable sales charges.
Average Annual Total Returns are not actual yearly results but even out
performance so that investors can compare different funds on an equal
basis. These returns take into account sales charges and would produce
the same results as the historic total returns for the same period if
performance had been constant.
Growth of an Assumed
Investment of $10,000 in the
Prudential Utility Fund
Class A
from inception on
1/22/90 through 12/31/94
(GRAPH)
The above chart represents historical performance of Class A shares and
assumes a front-end sales load of 5%. The net amount invested, after
taking into account the front-end sales load, was $9,500.
Class B
from inception on
8/10/81 through 12/31/94
(GRAPH)
The above chart represents historical performance of Class B shares and
does not assume the effects of a contingent deferred sales charge.
(Class B shares are subject to a CDSC of 5%, 4%, 3%, 2%, 1% and 1%
during the first six years.)
Key
/ / Value of shares initially purchased plus shares acquired through
reinvestment of all dividends and distributions.
// Value of shares initially purchased with all distributions
taken in cash.
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate and an investor's shares may be worth more
or less than the original amount when redeemed. Performance data for Class
C shares is not included since the share class commenced operations less
than one year ago.
<PAGE>
Letter to Shareholders
February 1, 1995
Dear Shareholder:
Rising U.S. interest rates and the threat of increased competition made
1994 a very difficult year for electric utility stocks and utility mutual
funds. For the 12 months ended December 31, 1994, the Standard & Poor's
Utility Index declined by 8%. This represents considerably poorer
performance than stocks in general, as measured by the Standard & Poor's
500 Index, which was nearly flat during the year. Within this
difficult environment, your Prudential Utility Fund performed better
than the average utility mutual fund, as measured by Lipper Analytical
Services, Inc.
<PAGE>
1994 Investment Results
Total Returns
(GRAPH)
Source: Prudential Investment Corporation. For purposes of comparison
only. Bonds as measured by the Lehman Brothers government/corporate
aggregate. U.S. stocks as measured by the S&P 500 Index. Global stocks
as measured by the Morgan Stanley Capital International World Index.
U.S. money markets as measured by IBC/Donoghue's all taxable funds
average.
What Has Caused the Utility Market Decline?
Rising U.S. interest rates - the federal funds rate (the interbank
overnight lending rate) was up to 5.5% at the end of 1994, compared
to 3.0% at the end of 1993. Electric utility stocks, sometimes viewed
as a substitute for bonds because of their traditionally high dividend
payout ratios, were particularly vulnerable to rising U.S. interest rates.
When rates began to climb in February, bond and electric utility stock
prices dropped.
But rising rates weren't the whole story. Like many mature industries,
electric utilities faced the effects of long-term structural changes
in 1994. We've discussed these at length in prior letters, but we'd
like to highlight several changes within the industry that contributed
to the decline of electric utility stocks:
- - State and federal government units are considering proposals to increase
competition among electric utility companies.
- - State regulatory commissions, which govern the amount utilities can
charge their customers, were stricter in allowing rate increases. This
limited the amount of profits many electric utilities can realize.
- - With profit margins falling, some electric utilities are finding it
difficult to continue the high dividend payout ratios they have historically
maintained. This may mean lower dividend growth for utilities in the future.
How the Fund Responded.
We've been monitoring changes in the market for many years, and over time
have taken steps to reposition the Fund. We are currently emphasizing three
sectors of the utility market - natural gas, telecommunications and non-U.S.
utilities. We are avoiding U.S. electric utility companies (among the poorest
performers in 1994). This strategy helped the Fund perform better than
-1-
<PAGE>
comparable mutual funds during a difficult year, even after a poor fourth
quarter. In 1995, we still believe better long-term prospects can be found
in the natural gas, telecommunications and foreign utility sectors.
- - Focus on U.S. Natural Gas Stocks. Approximately 30% of the Fund is in
natural gas pipeline and distribution stocks, including Sonat, Panhandle
Eastern and Pacific Enterprises. While natural gas prices suffered in the
fourth quarter as a result of the unusually mild early winter in the U.S.,
their prospects remain positive going forward.
Natural gas prices have been low for the better part of a decade and we
believe the companies that produce gas should begin to benefit from
increasing demand for gas as a cleaner-burning, low-cost fuel
alternative - especially if oil and gasoline prices rise.
On the Hill:
In 1995, Congress is set to consider an initiative that would restore
full income tax deductibility for individual retirement account
contributions for middle-income wage earners. In addition, Congress
will also debate creation of a new tax-deferred savings account, called
"the American Dream Savings Account." Prudential Mutual Funds supports
both of these proposals, and we urge you to share your own opinion with
your Congressional representatives. We will keep you updated on the
proposals as they make their way through the legislative process.
- - Focus on U.S. Telecommunications Issues. Telecommunications issues
currently comprise approximately 24% of Fund assets, including AT&T,
MCI and NYNEX. Telecommunications companies continue to benefit from
the growing economies around the world, as well as from their movement
into new cable television and multi-media communications services.
As telecommunications firms explore mergers and joint ventures to
expand consumer technology, we see good potential for growth in
this sector.
- - Focus on Non-U.S. Utilities. Currently, approximately 25% of the Fund
is invested in non-U.S. issues, concentrated primarily on non-U.S.
electric utilities, like Iberdrola (Spain), and Evn-Energie Versorgung
(Austria), and non-U.S. telecommunications firms, like SIP (Italy),
TeleDanmark (Denmark) and Telefonica de Espana (Spain)
We Really Like Non-U.S. Utilities:
- - Foreign utilities are just beginning to benefit from cost-cutting and
tariff reform, which can help raise their profit margins and stock prices.
- - Demand for electric, telephone and natural gas services in developing
countries is growing much faster than in the U.S. because they haven't
had much money to invest in this kind of technology.
- - Privatization of utilities overseas has created some attractively-priced
opportunities, because these stocks typically come to market priced much
cheaper than their values warrant.
Looking Ahead to a New Utility Market.
With the utility industry undergoing profound long-term changes, and
the future of interest rates and inflation uncertain, U.S. electric
utility stocks face a considerably more complex environment today than
10 years ago. They have been traditionally the backbone of the U.S.
utility market, and recent price declines may have created some value
opportunities in this sector. Still, the Prudential Utility Fund will
continue to emphasize the natural gas, telecommunications and non-U.S.
sectors of the changing utility marketplace.
-2-
<PAGE>
While the utility market has changed, we believe there may still be
opportunities in this sector for conservative, long-term investors - and
they'll continue to present themselves as long as the world continues to
need electric, gas, and telephone services. In fact, in many parts of
the world, the demand for these services is growing rapidly.
We look forward to a year of exciting investment opportunities in this
ever-changing industry. Thank you for choosing the Prudential Utility
Fund for your investment.
Fund Update:
Beginning in February 1995, Class B shareholders should begin to notice
a change in their Fund holdings. That's when Class B shares will begin
to convert to Class A shares, on a quarterly basis, approximately seven
years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly,
after conversion, you will earn higher total returns on your investment
than you would have as a Class B shareholder. This conversion will be
processed automatically and won't require any further action on your part.
Sincerely,
Lawrence C. McQuade
President
Warren E. Spitz
Co-Portfolio Manager
David Kiefer
Co-Portfolio Manager
Media Mentions:
The Prudential Utility Fund was included in listings in Worth Financial
Intelligence in November 1994 and in Barron's on September 3, 1994.
-3-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
David Kiefer
We talked with portfolio manager David Kiefer about some of the
Fund's current investment strategies.
Q. With all the media coverage of the "information superhighway,"
why aren't telecommunications stocks performing better?
A. Recently, investors have been concerned about increased competition
in the telecommunications sector, as evidenced by merger activity. This
has led to some short-term price declines. We're not concerned because
we see some chances for growth potential resulting from usage of current
technology, such as fax machines, data transfer and private networks for
business clients. Looking a little farther down the information superhighway,
we are optimistic about some of the more exciting long-term technological
developments that consumers are reading about in their newspapers every
day. These are things like fiberoptics and new ways to provide telephone
and cable television services in homes and workplaces - all new
technologies that will really change the way we use utility services.
Q. How do you select stocks for the foreign portion of the Fund's portfolio.
A. Our basic philosophy is the same whether we're shopping in the U.S. or
abroad. We select stocks that don't appear to reflect the company's growth
potential or asset value. This has led us to seek stocks like SIP (Italy).
Although Italy has a fairly strong economy, ongoing political turmoil there
has led investors to shun this newly privatized utility's stock. We believe
that as Italy's economy continues to grow in the emerging European recovery,
the company's revenues should pick up and its stock price should begin to
more fairly represent its value.
-4-
<PAGE>
PRUDENTIAL UTILITY FUND Portfolio of Investments
December 31, 1994
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
LONG-TERM INVESTMENTS--95.9%
Common Stock--91.6%
Communications--23.6%
1,500,000 AirTouch
Communications*......... $ 43,687,500
582,200 American Telephone &
Telegraph Co............ 29,255,550
1,050,000 BCE Inc................... 33,731,250
755,200 BellSouth Corp............ 40,875,200
3,200,000 British Telecommunications
PLC
(ADR) (United
Kingdom)................ 18,948,259
2,067,000 MCI Communications
Corp.................... 37,981,125
1,175,000 MTC Electronic
Technologies Co.,
Ltd.*................... 3,525,000
2,403,300 NYNEX Corp................ 88,321,275
398,000 Philippine Long Distance
Telephone Co. (ADR)
(Philippines)........... 21,541,750
79,100 PT Indonesian Satellite
(ADR)
(Indonesia)*............ 2,827,825
330,000 Rochester Telephone
Corporation............. 6,971,250
17,700,000 SIP (Italy)............... 45,936,430
2,719,200 Southern New England
Telecommunications
Corp.................... 87,354,300
2,519,300 Sprint Corp............... 69,595,662
19,500,000 Stet-Societa Finanziaria
Telefonica
P.A. (Italy)............ 57,263,385
1,241,700 Tele Danmark (ADR)
(Denmark)*.............. 31,663,350
527,000 Telebras (ADR) (Brazil)... 23,583,250
2,550,000 Telefonica de Espana, S.A.
(ADR) (Spain)........... 89,568,750
2,474,200 Telefonos de Mexico, S.A.
(ADR) (Mexico).......... 101,442,200
1,713,700 US West, Inc.............. 61,050,563
--------------
895,123,874
--------------
Electric Power--37.3%
1,058,927 AES Corp.*................ $ 20,649,076
1,000,000 California Energy Company,
Inc.*................... 15,625,000
1,033,400 Central Louisiana Electric
Company, Inc............ 24,414,075
1,241,600 Central Maine Power Co.... 17,072,000
3,582,685 Cinergy Corporation....... 83,745,262
3,700,000 CMS Energy Corporation.... 84,637,500
1,249,160 Compania Energetica de
Minas Gerais-Cemig (ADR)
(Brazil)*............... 29,823,695
17,779,000 Consolidated Electric
Power
(Hong Kong)*............ 39,059,576
63,200 Destec Energy, Inc.*...... 671,500
2,000,600 Detroit Edison Co......... 52,265,675
1,396,900 DPL Inc................... 28,636,450
130,000 DQE Inc................... 3,851,250
896,300 Eastern Utilities
Associates.............. 19,718,600
1,710,200 El Paso Electric Company
*/**.................... 1,389,538
1,247,700 Empresa Nacional de
Electricidad S.A. (ADR)
(Spain)................. 50,531,850
4,137,602 Entergy Corporation....... 90,510,044
381,000 Evn Energie - Versorgung
Niederoesterreich AG
(Austria)............... 49,495,943
2,094,900 General Public Utilities
Corporation............. 54,991,125
420,000 Huaneng Power
International Inc. (ADR)
(China)*................ 6,195,000
9,831,000 Iberdrola (Spain)......... 60,613,303
3,351,700 Illinova Corp............. 72,899,475
887,600 Kansas City Power & Light
Co...................... 20,747,650
89,600 Kenetech Corp.*........... 1,288,000
985,600 Long Island Lighting
Co...................... 15,153,600
6,000,000 National Power PLC
(United Kingdom)........ 46,054,796
1,822,000 New York State Electric &
Gas Corp................ 34,618,000
1,458,000 Niagara Mohawk Power
Corp.................... 20,776,500
1,018,200 NIPSCO Industries, Inc.... 30,291,450
1,873,900 Northeast Utilities....... 40,523,087
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL UTILITY FUND
<TABLE>
<CAPTION>
Value
Shares Description (Note 1)
<C> <S> <C>
Electric Power--(cont'd)
770,000 Oester Elektrizita
(Austria)............... $ 44,473,986
2,711,900 Peco Energy Co............ 66,441,550
2,303,400 Pinnacle West Capital
Corp.................... 45,492,150
500,000 PowerGen PLC
(United Kingdom)........ 4,180,569
274,100 Public Service Company of
Colorado................ 8,051,688
2,057,000 Public Service Company of
New Mexico*............. 26,741,000
1,089,800 Public Service Enterprise,
Inc..................... 28,879,700
1,098,100 Sithe Energies, Inc.*..... 11,530,050
3,845,800 The Southern Company...... 76,916,000
115,000 The United Illuminating
Company................. 3,392,500
7,841,200 Tucson Electric Power
Company*................ 24,503,750
2,198,700 Unicom Corp............... 52,768,800
--------------
1,409,620,763
--------------
Natural Gas--30.1%
283,650 Bay State Gas Co.......... 6,807,600
2,231,600 British Gas PLC (ADR)
(United Kingdom)........ 108,790,500
450,000 Burlington Resources,
Inc..................... 15,750,000
3,826,275 Coastal Corp.............. 98,526,581
2,500,000 Columbia Gas System,
Inc.*/**................ 58,750,000
117,600 Eastern Enterprises....... 3,087,000
1,714,000 El Paso Natural Gas Co.... 52,277,000
500,000 Energen Corp.............. 11,000,000
903,300 Enron Corp................ 27,550,650
3,202,900 ENSERCH Corp.............. 42,038,062
1,500,000 Equitable Resources,
Inc..................... 40,687,500
690,300 KN Energy, Inc............ 16,394,625
703,600 MCN Corporation........... 12,752,750
810,600 NICOR, Inc................ 18,441,150
3,148,000 Noram Energy
Corporation............. 16,920,500
700,000 Oryx Energy Co.*.......... 8,312,500
3,544,300 Pacific Enterprises....... 75,316,375
4,822,800 Panhandle Eastern
Corporation............. 95,250,300
117,600 Providence Energy Corp.... $ 1,866,900
1,880,400 Questar Corp.............. 51,711,000
3,593,300 Sonat, Inc................ 100,612,400
990,000 Sonat Offshore Drilling,
Inc..................... 17,572,500
205,400 Southwest Gas
Corporation............. 2,901,275
802,500 Talisman Energy, Inc.
(Canada)*............... 13,451,320
521,800 Tejas Power Corp.*........ 4,826,650
7,700,000 TransCanada Pipelines Ltd.
(Canada)................ 94,053,138
1,916,300 Transco Energy Co......... 31,858,487
2,200,000 Westcoast Energy, Inc..... 34,925,000
2,868,750 Williams Cos., Inc........ 72,077,344
161,150 Yankee Energy System,
Inc..................... 3,505,013
--------------
1,138,014,120
--------------
Realty Investment Trust--0.6%
52,500 Charles E. Smith
Residential
Realty, Inc............. 1,332,187
700,000 Equity Residential
Property Trust.......... 21,000,000
--------------
22,332,187
--------------
Total common stock
(cost $3,322,193,986)... 3,465,090,944
--------------
Preferred Stock--0.2%
Electric Power
440,000 Kenetech Corp.,
Convertible, $2.18
(cost $8,878,321)......... 6,765,000
--------------
<CAPTION>
Principal
Amount Bonds--4.1%
(000) Communications
- ----------
<C> <S> <C>
$ 2,250 MTC Electronic
Technologies Co., Ltd.
8.00%, 7/31/03............ 1,440,000
--------------
Electric Power--1.5%
5,000 Arkansas Power & Light
Co.,
10.00%, 2/1/20............ 5,177,550
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
<TABLE>
<CAPTION>
Principal
Amount Value
(000) Description (Note 1)
<C> <S> <C>
Electric Power--(cont'd)
Cincinnati Gas & Electric
Co.,
$ 6,500 9.70%, 6/15/19............ $ 6,031,220
10,000 10.20%, 12/1/20........... 10,905,200
10,000 Cleveland Electric
Illumination Co.,
9.375%, 3/1/17............ 8,548,500
10,000 Commonwealth Edison Co.,
9.625%, 7/1/19............ 9,811,800
10,000 Niagara Mohawk Power
Corp.,
9.50%, 3/1/21............. 9,447,400
5,000 Texas Utilities Co.,
9.75%, 5/1/21............. 5,192,550
--------------
55,114,220
--------------
Natural Gas--2.6%
20,000 Arkla, Inc.,
10.00%, 11/15/19.......... 19,400,000
Burlington Resources,
Inc.,
10,000 8.50%, 10/1/01............ 10,026,200
15,000 9.125%, 10/1/21........... 15,624,600
Coastal Corp.,
5,000 8.125%, 9/15/02........... 4,728,500
15,000 9.625%, 5/15/12........... 15,440,850
Columbia Gas System,
Inc.,*/**
2,500 10.25%, 5/1/99............ 3,100,000
1,031 10.25%, 8/1/11............ 1,299,060
1,000 10.50%, 6/1/12............ 1,250,000
8,180 10.15%, 11/1/13........... 10,061,400
Oryx Energy Co.,
2,000 9.50%, 11/1/99............ 1,880,580
1,000 7.50%, 5/15/14............ 695,000
15,000 Williams Cos., Inc.,
8.875%, 9/15/12........... 14,833,050
--------------
98,339,240
--------------
Total bonds
(cost $160,416,309)..... $ 154,893,460
--------------
Total long-term
investments
(cost $3,491,488,616)... 3,626,749,404
--------------
SHORT-TERM INVESTMENTS--3.3%
Commercial Paper--3.3%
$ 10,324 Chemical Bank,
6.25%, 1/3/95........... 10,324,000
114,000 First Union National Bank
of North Carolina,
5.00%, 1/3/95............. 114,000,000
--------------
Total commercial paper
(cost $124,324,000)..... 124,324,000
--------------
Repurchase Agreement
1,204 Joint Repurchase Agreement
Account,
5.82%, 1/3/95
(cost $1,204,000; Note
5)...................... 1,204,000
--------------
Total short-term
investments
(cost $125,528,000)..... 125,528,000
--------------
Total Investments--99.2%
(cost $3,617,016,616; Note
4)...................... 3,752,277,404
Other assets in excess of
liabilities--0.8%....... 28,797,541
--------------
Net Assets--100%.......... $3,781,074,945
--------------
--------------
</TABLE>
- ---------------
*Non-income producing securities.
**Issuer in bankruptcy.
ADR--American Depository Receipt.
-7- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1994
-----------------
<S> <C>
Investments, at value (cost $3,617,016,616)........................................... $ 3,752,277,404
Foreign currency, at value (cost $737,174)............................................ 746,037
Cash.................................................................................. 84,186
Receivable for investments sold....................................................... 37,183,207
Dividends and interest receivable..................................................... 17,146,479
Receivable for Fund shares sold....................................................... 3,136,933
Deferred expenses and other assets.................................................... 62,499
-----------------
Total assets...................................................................... 3,810,636,745
-----------------
Liabilities
Payable for investments purchased..................................................... 11,630,663
Payable for Fund shares reacquired.................................................... 11,491,933
Distribution fee payable.............................................................. 3,079,434
Accrued expenses and other liabilities................................................ 1,366,028
Management fee payable................................................................ 1,340,327
Withholding taxes payable............................................................. 653,415
-----------------
Total liabilities................................................................. 29,561,800
-----------------
Net Assets............................................................................ $ 3,781,074,945
-----------------
-----------------
Net assets were comprised of:
Common stock, at par................................................................ $ 4,578,952
Paid-in capital in excess of par.................................................... 3,286,917,668
-----------------
3,291,496,620
Undistributed net investment income................................................. 362,044,704
Distributions in excess of net realized gain on investments......................... (7,736,986)
Net unrealized appreciation on investments and foreign currencies................... 135,270,607
-----------------
Net assets, December 31, 1994....................................................... $ 3,781,074,945
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($253,794,538 / 30,686,691 shares of common stock issued and outstanding)......... $8.27
Maximum sales charge (5.00% of offering price)...................................... .44
-----------------
Maximum offering price to public.................................................... $8.71
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($3,526,493,619 / 427,113,205 shares of common stock issued and outstanding)...... $8.26
-----------------
-----------------
Class C:
Net asset value, offer price and redemption price per share
($786,788 / 95,290 shares of common stock issued and outstanding)................. $8.26
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Loss 1994
-----------------
Income
<S> <C>
Dividends (net of foreign
withholding taxes of
$5,478,433)..................... $166,710,397
Interest.......................... 22,599,083
-------------
Total income.................... 189,309,480
-------------
Expenses
Distribution fee--Class A......... 734,666
Distribution fee--Class B......... 41,520,608
Distribution fee--Class C......... 1,791
Management fee.................... 17,824,846
Transfer agent's fees and
expenses.......................... 6,865,000
Reports to shareholders........... 1,794,000
Custodian's fees and expenses..... 1,175,000
Registration fees................. 150,000
Insurance......................... 108,000
Legal fees........................ 100,000
Audit fee......................... 58,000
Directors' fees................... 43,000
Miscellaneous..................... 92,412
-------------
Total expenses.................. 70,467,323
-------------
Net investment income............... 118,842,157
-------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions
Net realized gain on:
Investment transactions........... 137,946,117
Foreign currency transactions..... 173,190
-------------
138,119,307
-------------
Net change in unrealized
appreciation/depreciation on:
Securities........................ (646,919,194)
Foreign currencies................ (304,874)
-------------
(647,224,068)
-------------
Net loss on investments and foreign
currencies........................ (509,104,761)
-------------
Net Decrease in Net Assets
Resulting from Operations........... $(390,262,604)
-------------
-------------
</TABLE>
PRUDENTIAL UTILITY FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) -------------------------------
in Net Assets 1994 1993
--------------- --------------
<S> <C> <C>
Operations
Net investment
income.............. $ 118,842,157 $ 110,658,076
Net realized gain on
investments and
foreign currency
transactions...... 138,119,307 215,901,385
Net change in
unrealized
appreciation/depreciation
of investments and
foreign
currencies . . . . . (647,224,068) 257,763,554
--------------- --------------
Net increase
(decrease) in net
assets resulting
from operations... (390,262,604) 584,323,015
--------------- --------------
Net equalization
credits
(debits).......... (57,041,187) 95,670,312
--------------- --------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A........... (9,948,533) (8,808,902)
Class B........... (105,699,604) (99,427,992)
Class C........... (7,937) --
--------------- --------------
(115,656,074) (108,236,894)
--------------- --------------
Distributions from
net realized gains
Class A........... (10,711,271) (13,264,520)
Class B........... (150,769,531) (189,046,028)
Class C........... (22,563) --
--------------- --------------
(161,503,365) (202,310,548)
--------------- --------------
Distributions in
excess of net
realized gains
Class A........... (501,648) --
Class B........... (7,061,091) --
Class C........... (1,057) --
--------------- --------------
(7,563,796) --
--------------- --------------
Fund share transactions (Note 5)
Proceeds from shares
subscribed........ 467,562,860 1,512,896,198
Net asset value of
shares issued in
reinvestment of
dividends and
distributions..... 237,969,009 260,462,818
Cost of shares
reacquired.......... (1,284,670,198) (689,440,495)
--------------- --------------
Net increase
(decrease) in net
assets from Fund
share
transactions...... (579,138,329) 1,083,918,521
--------------- --------------
Total increase
(decrease).......... (1,311,165,355) 1,453,364,406
Net Assets
Beginning of year..... 5,092,240,300 3,638,875,894
--------------- --------------
End of year........... $ 3,781,074,945 $5,092,240,300
--------------- --------------
--------------- --------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Notes to Financial Statements
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. Utility companies include electric, gas, gas pipeline, telephone,
telecommunications, water and cable 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 The following is a summary
Policies of significant accounting poli-
cies 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 or designated subcustodians, as the case
may be under triparty repurchase agreements, 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 period, 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 gains on foreign currency transactions of $173,190 represent net
foreign exchange gains from sales and maturities of short-term securities,
disposition of foreign currency, gains or losses realized between the trade and
settlement dates of 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 or depreciation 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 foreign 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.
-10-
<PAGE>
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
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: The Fund accounts for and reports
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. The
effect of applying this statement was to increase undistributed net investment
income by $173,190 and decrease accumulated net realized gain on investments by
$173,190 for realized foreign currency gains realized during the fiscal year.
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.
The management fee paid PMF is 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, .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 with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively,
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B Plans under which the distribution plans became compensation plans,
effective August 1, 1994. Prior thereto, the distribution plans were
reimbursement plans, under which PMFD and PSI were reimbursed for expenses
actually incurred by them up to the amount permitted under the Class A and Class
B Plans, respectively. The Fund is not obligated to pay any prior or future
excess distribution costs (costs incurred by the Distributors in excess of
distribution fees paid by the Fund or contingent deferred sales charges received
by the Distributors). The rate of the distribution fees charged to Class A and
Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, 1% and
1% of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .25 of 1%, 1% and 1% of the average daily net
assets of the Class A, B and C shares, respectively, for the fiscal year ended
December 31, 1994.
PMFD has advised the Fund that it has received approximately $1,268,700 in
front-end sales charges resulting from sales of Class A shares during the year
ended December 31, 1994. 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.
PSI advised the Fund that for the year ended December 31, 1994, it received
approximately $8,431,000 in contingent deferred sales charges imposed upon
redemptions by certain Class B and Class C shareholders.
-11-
<PAGE>
<PAGE>
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 Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the year ended December 31, 1994, the Fund incurred fees of approximately
$5,317,000 for the services of PMFS. As of December 31, 1994, approximately
$419,000 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, 1994, PSI earned approximately $288,200 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the year ended
December 31, 1994, were $630,775,664 and $988,022,736, respectively.
The federal income tax basis of the Fund's investments at December 31, 1994
was $3,618,221,373 and, accordingly, net unrealized appreciation for federal
income tax purposes was $134,056,031 (gross unrealized
appreciation--$361,209,208; gross unrealized depreciation--$227,153,177).
The Fund elected to treat approximately $6,919,000 of net capital losses and
approximately $11,800 of net currency losses incurred during the two month
period ended December 31, 1994 as having incurred in the following fiscal year.
Note 5. Joint The Fund, along with other
Repurchase affiliated registered invest-
Agreement ment companies, transfers
Account 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, 1994, the Fund has a 0.2% undivided interest in the joint
account. The undivided interest for the Fund represented $1,204,000 in the
principal amount. As of such date, each repurchase agreement in the joint
account and the collateral therefor was as follows:
Goldman, Sachs & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,000,108.
Lehman Government Securities Inc., 5.90%, in the principal amount of
$70,000,000, repurchase price $70,045,889, due 1/3/95. The value of the
collateral including accrued interest is $71,379,084.
Morgan Stanley & Co., 5.75%, in the principal amount of $250,000,000,
repurchase price $250,159,722, due 1/3/95. The value of the collateral including
accrued interest is $255,146,220.
Smith Barney, Inc., 5.95%, in the principal amount of $200,000,000,
repurchase price $200,132,222, due 1/3/95. The value of the collateral including
accrued interest is $204,036,161.
Note 6. Capital The Fund currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 5%. 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. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase commencing in or about February, 1995.
There are 2 billion shares of $.01 par value per share common stock
authorized which consists of 566,666,666 shares of Class A common stock,
866,666,667 shares of Class B common stock and 566,666,667 shares of Class C
common stock. Transactions in shares of common stock for the year ended December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31,
1994:
Shares sold................. 9,835,226 $ 90,667,332
Shares issued in
reinvestment of dividends
and distributions......... 2,285,997 19,666,231
Shares reacquired........... (16,079,665) (148,287,334)
------------ ---------------
Net decrease in shares
outstanding............... (3,958,442) $ (37,953,771)
------------ ---------------
------------ ---------------
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
------------ ---------------
------------ ---------------
</TABLE>
-12-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
- --------------------------- ------------ ---------------
<S> <C> <C>
Year ended December 31,
1994:
Shares sold................ 44,735,679 $ 376,053,154
Shares issued in
reinvestment of dividends
and distributions........ 28,031,504 218,274,190
Shares reacquired.......... (136,533,323) (1,136,361,083)
------------ ---------------
Net decrease in shares
outstanding.............. (63,766,140) $ (542,033,739)
------------ ---------------
------------ ---------------
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
------------ ---------------
------------ ---------------
<CAPTION>
Class C
- ---------------------------
<S> <C> <C>
August 1, 1994* through
December 31, 1994:
Shares sold................ 94,343 $ 842,374
Shares issued in
reinvestment of
dividends and
distributions............ 3,437 28,588
Shares reacquired.......... (2,490) (21,781)
------------ ---------------
Net increase in shares
outstanding.............. 95,290 $ 849,181
------------ ---------------
------------ ---------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
Note 7. Contingency On October 12, 1993, a law-
suit was instituted against the Fund, PMF, PIC,
PSI and certain current and former directors of the Fund. The suit was brought
on behalf of the Fund and purportedly on behalf of a class of shareholders who
purchased their shares prior to 1985. The plaintiff sought damages on behalf of
the Fund under Section 36(b) of the Investment Company Act (the ``Act'') in an
unspecified amount for alleged excessive management and distribution fees paid
to PMF and PSI. The complaint also challenges the Alternative Purchase Plan (the
``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 plaintiff,
on behalf of the purported class, sought damages and equitable relief under the
Act and state common law against the Fund, PMF, PSI and certain named directors
of the Fund to change the classification of the shares of the class and to
compel a further vote on the Plan. On August 5, 1994, the United States District
Court for the Southern District of New York dismissed all of the claims in the
complaint except 1) the claims under Section 36(b) of the Act for excessive fees
and 2) the state law claim for breach of fiduciary duty in connection with the
adoption of the Plan. Although the outcome of this litigation cannot be
predicted at this time, the defendants believe they have meritorious defenses to
the claims remaining 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.
-13-
<PAGE>
<PAGE>
PRUDENTIAL UTILITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
Class C
----------------------------------------------------- Class B
------------
January 22,
- ----------------------------------------------- August 1,
1990DD
1994DDD
PER SHARE Year Ended December 31, Through Year Ended December 31,
Through
OPERATING -------------------------------------- December 31,
- ----------------------------------------------- December 31,
PERFORMANCE: 1994 1993 1992 1991 1990 1994 1993 1992 1991
1990 1994
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Net asset
value,
beginning
of
period... $ 9.72 $ 8.97 $ 8.72 $ 7.63 $ 8.65 $ 9.69 $ 8.96 $ 8.71 $ 7.63
$ 9.17 $ 9.30
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
Income
from
investment
operations:
Net
investment
income... .31 .33 .38 .39 .36 .24 .24 .31 .32
.31 .11
Net
realized
and
unrealized
gains
(losses)
on
investment
and
foreign
currency
trans-
actions.. (1.06) 1.12 .45 1.10 (.38) (1.05) 1.12 .46 1.10
(.91) (.69)
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
Total
from
investment
opera-
tions... (.75) 1.45 .83 1.49 (.02) (.81) 1.36 .77 1.42
(.60) (.58)
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
Less
distributions:
Dividends
from
net
investment
income... (.32) (.29) (.34) (.39) (.40) (.24) (.22) (.28) (.33)
(.34) (.13)
Distributions
from net
realized
gains... (.36) (.41) (.24) (.01) (.60) (.36) (.41) (.24) (.01)
(.60) (.31)
Distributions
in excess
of net
realized
gains... (.02) -- -- -- -- (.02) -- -- --
-- (.02)
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
Total
distri-
butions.. (.70) (.70) (.58) (.40) (1.00) (.62) (.63) (.52) (.34)
(.94) (.46)
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
Net asset
value,
end of
period... $ 8.27 $ 9.72 $ 8.97 $ 8.72 $ 7.63 $ 8.26 $ 9.69 $ 8.96 $ 8.71
$ 7.63 $ 8.26
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
----------- ------ ------ ------ ------------ ----------- ------ ------ ------
------ ------------
TOTAL
RETURN#... (7.89)% 16.28% 9.88% 19.95% (0.11)% (8.51)% 15.27% 9.02% 19.01%
(6.48)% (6.27)%
RATIOS/SUPPLEMENTAL
DATA:
Net
assets,
end of
period
(000,000).. $254 $337 $201 $111 $73 $3,526 $4,756 $3,438 $2,818
$2,395 $787*
Average
net
assets
(000,000).. $294 $287 $149 $85 $51 $4,152 $4,308 $3,027 $2,529
$2,315 $433*
Ratios to
average
net
assets:**
Expenses,
including
distribution
fees... .88% .80% .81% .87% .97%D 1.63% 1.60% 1.61% 1.67%
1.73% 1.70%D
Expenses,
excluding
distribution
fees... .63% .60% .61% .67% .77%D .63% .60% .61% .67%
.74% .70%D
Net
investment
income... 3.37% 3.16% 4.14% 4.69% 4.78%D 2.62% 2.36% 3.34% 3.89%
3.94% 2.65%D
Portfolio
turnover
rate... 15% 24% 24% 38% 53% 15% 24% 24% 38%
53% 15%
</TABLE>
- ---------------
D Annualized.
DD Commencement of offering of Class A shares.
DDD Commencement of offering of Class C 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.
* Figures are rounded to the nearest thousand.
** Because of the event referred to in DDD and the timing of such, the
ratios for Class C shares are not necessarily comparable to that of
Class A or Class B shares and are not necessarily indicative of
future ratios.
See Notes to Financial Statements.
-14-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors 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, 1994, 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, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 23, 1995
TAX INFORMATION (UNAUDITED)
We are required by Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (December 31, 1994) as to the federal tax status of
dividends paid by the Fund during its fiscal year ended December 31, 1994.
During 1994, the Fund paid dividends of $.695 per Class A share, $.615 per
Class B share and $.460 per Class C share. Of these amounts, $.325 per Class A
share, $.325 per Class B share and $.30 per Class C share represent
distributions from long-term capital gains, and is taxable as such. The
remaining $.370 per Class A share, $.290 per Class B share and $.16 per Class C
share represent 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 1994 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 1099-DIV.
-15-
<PAGE>
Prudential Utility Fund
Comparison of Change in Value of $10,000 Investment in Prudential Utility
Fund and The S&P 500 Index
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
-12.5% 6.1%
<CAPTION>
Without Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
-7.9% 7.2%
</TABLE>
Class A
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year 5 Year 10 Year
<S> <C> <C>
- -13.5% 4.9% 13.3%
<CAPTION>
Without Sales Load
1 Year 5 Year 10 Year
<S> <C> <C>
-8.5% 5.1% 13.3%
</TABLE>
Class B
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -7.3%
<CAPTION>
Without Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -6.3%
</TABLE>
Class C
(GRAPH)
S&P 500 Prudential Utility Fund
Past performance is not predictive of future performance and an investor's
shares when redeemed may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Utility Fund (Class A, Class
B and Class C) with a similar investment in the S&P 500 Index by portraying
the initial account values at the commencement of operations for Class A and
C shares, and for 10 years 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, in 1984 for Class B shares
and in 1994 for Class C shares. For purposes of the graphs, and unless
otherwise indicated, in the accompanying tables it has been assumed (a)
that the maximum applicable front-end 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 and Class C shares, assuming full redemption on December 31, 1994;
(c) all recurring fees (including management fees) were deducted; and (d) all
dividends and distributions were reinvested. Class B shares will automatically
convert to Class A shares, on a quarterly basis, beginning approximately seven
years after purchase. This conversion feature is not reflected in the graph.
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 in the S&P 500 may differ substantially from
the securities in the Fund. The S&P 500 is not the only index that may be
used to characterize performance of convertible bond funds and other
indexes may portray different comparative performance.
<PAGE>
The Prudential Mutual Fund Family
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the
investment options available through our family of funds. For more
information on the Prudential Mutual Funds, including charges and
expenses, contact your Prudential Securities Financial Advisor or
Pruco Securities Representative or telephone the Funds at (800) 225-1852
for a free prospectus. Read the prospectus carefully before you invest or
send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
(formerly known as Prudential
Government Plus Fund)
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
(formerly known as Prudential FlexiFund)
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
(formerly known as Prudential Growth Fund)
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
- -Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Directors
Robert R. Fortune
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas A. Owens, Jr.
Richard A. Redeker
Merle T. Welshans
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
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